Alternative Currencies in the Digital Age 1774071738, 9781774071731

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ALTERNATIVE CURRENCIES IN THE DIGITAL AGE

ALTERNATIVE CURRENCIES IN THE DIGITAL AGE

Edited by:

David Zhou

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www.societypublishing.com

Alternative Currencies in the Digital Age David Zhou

Society Publishing 2010 Winston Park Drive, 2nd Floor Oakville, ON L6H 5R7 Canada www.societypublishing.com Tel: 001-289-291-7705 001-905-616-2116 Fax: 001-289-291-7601 Email: [email protected]

e-book Edition 2020 ISBN: 978-1-77407-528-9 (e-book) This book contains information obtained from highly regarded resources. Reprinted material sources are indicated and copyright remains with the original owners. Copyright for images and other graphics remains with the original owners as indicated. A Wide variety of references are listed. Reasonable efforts have been made to publish reliable data. Authors or Editors or Publishers are not responsible for the accuracy of the information in the published chapters or consequences of their use. The publisher assumes no responsibility for any damage or grievance to the persons or property arising out of the use of any materials, instructions, methods or thoughts in the book. The authors or editors and the publisher have attempted to trace the copyright holders of all material reproduced in this publication and apologize to copyright holders if permission has not been obtained. If any copyright holder has not been acknowledged, please write to us so we may rectify. Notice: Registered trademark of products or corporate names are used only for explanation and identification without intent of infringement. © 2020 Society Publishing ISBN: 978-1-77407-173-1 (Hardcover) Society Publishing publishes wide variety of books and eBooks. For more information about Society Publishing and its products, visit our website at www.societypublishing.com.

ABOUT THE EDITOR

David Zhou graduated from the Central South University with a B.S. in Chemical Engineering, and his career has taken a tech focus from there. As a management consultant, David Zhou advised various clients on how to implement information systems to drive for business success. Also, he is a passionate supporter for the blockchain technologies and have participated several projects as a whitepaper consultant or bilingual project coordinator.

TABLE OF CONTENTS

List of Figures ................................................................................................xi List of Tables.................................................................................................xv List of Abbreviations ...................................................................................xvii Preface.................................................................................................... ....xix Chapter 1

Currencies of the Digital Age .................................................................... 1 1.1. Introduction ........................................................................................ 2 1.2. Types of Digital Currency .................................................................... 7 1.3. Gold Backed Currency...................................................................... 14 1.4. The Technology Behind Cryptocurrency ............................................ 15 1.5. Blockchain ....................................................................................... 18 1.6. Decentralized Application ................................................................ 27 1.7. Mining of Cryptocurrency ................................................................. 32 References ............................................................................................... 36

Chapter 2

Economy and Alternative Currencies ...................................................... 39 2.1. Introduction ...................................................................................... 40 2.2. The Political Economy Approach: Addressing Alternative Economies In Relation To Capitalism .............................................. 43 2.3. Factors Influencing The Basic Model of Capitalism (Figure 2.2) ......... 45 2.4. Cryptocurrencies And The Economics of Money ............................... 47 2.5. Cryptocurrency: Threat To The Economy or New Possibilities ............ 48 2.6. Effect of Cryptocurrency on Global Economy.................................... 52 2.7. Economic Consequences of Cryptocurrencies and Associated Decentralized Systems.................................................. 59 2.8. Outstanding Issues Around the Cryptocurrency Market ..................... 61 2.9. Corporate Debt, Cryptocurrencies & The Next Financial Crisis.......... 63

References ............................................................................................... 67 Chapter 3

Bitcoins: The New Age Currency ............................................................ 69 3.1. Introduction ...................................................................................... 70 3.2. What Is Bitcoin? ................................................................................ 71 3.3. Why Bitcoin Is ‘Good Money’ For The Global Digital Era .................. 73 3.4. Bitcoin’s Transactional Properties ...................................................... 76 3.5. Bitcoin: A Currency of Digital Era ..................................................... 77 3.6. Bitcoin Business Opportunities ......................................................... 79 3.7. What Makes Bitcoin Valuable? .......................................................... 82 3.8. Blockchain Technology Could Change The World Much Like The Internet Did ...................................................................... 85 3.9. Mining Of Bitcoin ............................................................................. 88 3.10. The Bitcoin Network (Figure 3.7)..................................................... 90 3.11. Conclusion ..................................................................................... 92 Reference ................................................................................................ 93

Chapter 4

The Blockchains: The Chains Keeping You Ahead ................................... 95 4.1. Introduction ...................................................................................... 96 4.2. Trade and Emergence of Money ...................................................... 100 4.3. Blockchain: Restoring Transparency, Re-Establishing Trust ............... 107 4.4. Physical World Equivalence of The Blockchain ............................... 109 4.5. Applications of Blockchain Technology In Various Industries ........... 111 4.6. Challenges of Using Blockchain Technology ................................... 113 4.7. Conclusion ..................................................................................... 113 References ............................................................................................. 117

Chapter 5

Mining The Exchange Process ............................................................... 119 5.1. Introduction .................................................................................... 120 5.2. Need of Mining of Alternate Currency ............................................ 122 5.3. Mining of Cryptocurrencies ............................................................ 126 5.4. What Is The Exchange Process of The Alternate Currencies? ............ 129 5.5. Platforms For Exchange of Alternate Currencies (Figure 5.5) ............ 134 5.6. Challenges In Exchange of Cryptocurrencies ................................... 137 5.7. Conclusion ..................................................................................... 142 References ............................................................................................. 145

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Chapter 6

Monetary Policy and Alternate Currencies............................................ 147 6.1. Introduction .................................................................................... 148 6.2. Monetary Policy and Digital Age..................................................... 151 6.3. Central Bank Policies Around the World ......................................... 156 6.4. IMF and Central Banks Response to Cryptocurrencies..................... 165 6.5. Implications of Digital Currencies for Central Banks ....................... 169 References ............................................................................................. 172

Chapter 7

Cybercrime and the Alternative Currencies .......................................... 173 7.1. Introduction .................................................................................... 174 7.2. History of Cybercrime..................................................................... 176 7.3. Cybercrime ..................................................................................... 178 7.4. Types of Cybercrime ....................................................................... 179 7.5. Causes of Cybercrime ..................................................................... 183 7.6. How To Tackle Cybercrime ............................................................. 184 7.7. Concealing Identities Cryptocurrencies Fuel Cybercrime ................ 186 7.8. Five Ways Cyber-Criminals are Trying to Cash in on Crypto-Currency .......................................................................... 189 7.9. How Cryptocurrencies Fuel Cybercrimes ........................................ 191 7.10. Cryptocurrencies and The Revolution in Cybercrime Economics ... 193 References ............................................................................................. 197

Chapter 8

The Future of Digital Currency ............................................................. 199 8.1. Introduction .................................................................................... 200 8.2. The Future With the Digital Currency .............................................. 203 8.3. How Will Digital Currencies Be Regulated? .................................... 206 8.4. Digital Currency Economy .............................................................. 210 8.5. The State of Frenzy in the Crypto World .......................................... 214 8.6. Cryptocurrencies: Yet Another Disruption ....................................... 215 8.7. Succeeding of Cryptocurrency ........................................................ 218 8.8. Future of Cryptocurrency: Why E-Commerce is the Answer ............ 222 8.9. From E-Commerce to C-Commerce ................................................ 225 8.10. Bitcoin’s Alternatives ..................................................................... 225 8.11. Conclusion ................................................................................... 227 References ............................................................................................. 228 Index ..................................................................................................... 229 ix

LIST OF FIGURES Figure 1.1. Introduction to crypto-money/currencies Figure 1.2. Digital currencies Figure 1.3. Virtual currencies (VCs) Figure 1.4. Cryptocurrency Figure 1.5. Ethereum Figure 1.6. Ripple Figure 1.7. Litecoin Figure 1.8. Dash Figure 1.9. Peercoin Figure 1.10. Dogecoin Figure 1.11. Ven Figure 1.12. Bitcoin Figure 1.13. Safety Figure 1.14. Anonymous Figure 1.15. Blockchain Figure 1.16. Blockchain technology Figure 1.17. Traditional client-server model Figure 1.18. Smart contract system Figure 1.19. Applications of the decentralized system Figure 1.20. Features of decentralized applications Figure 1.21. Mining of cryptocurrency Figure 2.1. A form of alternative currencies Figure 2.2. Capitalism Figure 2.3. Blockchain technology Figure 2.4. Crown funding Figure 2.5. Exchange traded funds (ETF)

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Figure 2.6. Cryptocurrencies Figure 2.7. Some of the major issues around the market of cryptocurrency Figure 3.1. Logo of Bitcoin Figure 3.2. Safety and security of Bitcoin Figure 3.3. Increase in the importance of Bitcoin Figure 3.4. Bitcoin ATM Figure 3.5. Technology in Bitcoin Figure 3.6. Bitcoin mining technology Figure 3.7. Bitcoin network Figure 4.1. Trade and emergence Figure 4.2. Blockchain of things Figure 4.3. Applications of blockchain technology Figure 5.1. Mining is the first step for the setting up of the market of cryptocurrency Figure 5.2. There is an urgent need to mine the digital currencies Figure 5.3. Mining of the new blocks paves the way for better transactions Figure 5.4. Wallets of cryptocurrencies allow holding of the digital currencies as assets Figure 5.5. Platforms for the exchanges of the cryptocurrencies Figure 5.6. There are many challenges in the roadmap of the exchange of cryptocurrencies Figure 5.7. Security is the important aspect for digital currencies Figure 5.8. Liquidity of money is required to maintain the market Figure 6.1. Representation of cryptocurrency Figure 6.2. Cryptocurrencies have an impact on fiat currencies Figure 6.3. Federal Reserve Bank of Chicago Figure 6.4. Digital representation of the digital currency Figure 8.1. Bitcoin currently emerging cryptocurrency Figure 8.2. Paper money will soon be replaced by digital money Figure 8.3. Digital currency is what might run the future economy of developing countries Figure 8.4. Light coin another competitor in the future cryptocurrency race xii

Figure 8.5. Future currency will derive the future economies Figure 8.6. Cryptocurrency network Figure 8.7. Poster depicting the ease of using cryptocurrency than paper currency Figure 8.8. Bitcoin the longest running cryptocurrency Figure 8.9. Cryptocurrencies could be used for illegal activities Figure 8.10. Poster depicting altcoins as a dark marketplace

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LIST OF TABLES Table 1.1. Technologies of blockchain

LIST OF ABBREVIATIONS AICPA

American Institute of CPAs

AMLD

anti-money laundering directive

ASIC

application specific integrated circuit

ATMs

all time machines

CAD

Canadian currency

CBDC

Central Bank Digital Currency

DCVCs

decentralized convertible virtual currencies

DHS

Department of Homeland Security

ECCB

Eastern Caribbean Central Bank

ETF

exchange traded funds

EVM

Ethereum virtual machine

GDAX

global digital asset exchange

GPUs

graphical processing units

ICOs

initial coin offerings

IFF

Institute of International Finance

IFRS

International Finance Reporting Standards

LLL

low-level lisp like

OTC

over the counter

PBOC

People’s Bank of China

RTGS

real-time gross settlement system

SARB

South African Reserve Bank

SEC

Securities and Exchange Commission

SINPE

National System of Electronic Payment

TPS

transactions per second

UBI

universal basic income

VCs

virtual currencies

PREFACE

Alternate currencies are a new trend across the world due to its digital significance. It is increasingly being adopted by the people across the world due to its easy exchangeability and acceptance across the wide range of nations. As there is limited knowledge and literature on the subject as of now, this book aims at providing the knowledge that is frequently searched for, by the people looking up to the potential of these currencies. Salient features of this book are: •

•

•

•

•

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The book introduces the readers to the subject of alternate currencies. It points to the evolution of such currencies and their importance in the evolutionary financial solutions. The book takes the readers through the significance of alternate currencies in the economies around the world. It talks about the factors that influence the basic model of capitalism. It discusses the role of politics in the changing economy and the need to secure financial transactions. The book debates over the nature of cryptocurrency and its impact on the economy. It explains the readers about the various effects of cryptocurrency on the global economy. It enlists various economic consequences of cryptocurrencies. It also discusses the problems that surround the adoption of cryptocurrency by the economies. The book moves further to explore Bitcoins. It defines Bitcoins for the readers and explains its positive side to them. It enlists various features of Bitcoin that make it appropriate to be used as a transactional currency. The book ponders over Bitcoin as a currency for the digital era and discusses the future prospects of Bitcoin in the business world and explains what makes Bitcoin valuable for the business. It discusses the importance of blockchain technology and the process of Bitcoin mining. The book explains the subject of blockchain to the readers and discusses about the trade and emergence of money. It dwells upon the importance of transparency in the digital world. It explains the significance and equivalent forms of blockchain in the physical world and enlists various applications and challenges of blockchain technology in the various industries.

•

The book explains the need for mining of alternate currency. It explains the process of mining of cryptocurrency and the process and platform that is meant for the exchange of alternate currencies. It also enlists the challenges incurred in this process. • Moving further, the book talks about the policies that have been formed by the various central banks of several nations across the globe, with respect to the cryptocurrencies. It involves the policies being framed by the International Monetary Fund and their compliance to the banks of the nations around the world. The book also informs about the implications of digital currencies on the central banks around the world. • The book goes on to talk about the subject and consequences of cybercrime on the alternate currencies. It informs the readers about the different kinds of cybercrimes that may take place in the field of alternative currencies and what causes them. It enlists various ways in which these crimes can be tackled. • The book offers an outlook to the significance of cryptocurrencies in the future. It discusses the processes that will need to be carried out in the future for the proper regulation of cryptocurrencies. It discusses its significance and its application in e-commerce and dwells upon the alternatives of Bitcoin. Why this book? The cryptocurrency is the new form of exchangeable currency in the modern digital era. Its significance has risen exponentially in recent time owing to the huge profits it provided to the investors. The emergence of cryptocurrency provides a new dimension to the financial world. This book provides an insight into the subject equipping the readers with the knowledge they may need for the future in the concerned subject.

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Chapter 1

Currencies of the Digital Age

CONTENTS 1.1. Introduction ........................................................................................ 2 1.2. Types of Digital Currency .................................................................... 7 1.3. Gold Backed Currency...................................................................... 14 1.4. The Technology Behind Cryptocurrency ............................................ 15 1.5. Blockchain ....................................................................................... 18 1.6. Decentralized Application ................................................................ 27 1.7. Mining of Cryptocurrency ................................................................. 32 References ............................................................................................... 36

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The chapter of currencies of digital age mention about the significance and types of crypto-currency or crypto-money as well as the gold baked money are using in the present time all across the world. This chapter talks about the various technologies which are using behind the exchange of mining and exchange of virtual or digital money. This chapter emphasizes the technology of blockchain, pillars of blockchain, smart contracts, platform for smart contracts, applications of smart contracts and risks. This chapter also addresses about the decentralized applications, features of decentralized application and benefits of decentralized application.

1.1. INTRODUCTION Digital currency is a new way to ease up the methods of payments which exist only in the form of electronic, not physical. The exchange of digital currency can only be done between entities or users via technology such as computers, smartphones, and the internet. Even though the digital currency is quite similar to physical currencies, digital money permits independent of limit transfer of ownership as well as on the spot transactions or instantaneous transaction. Use of digital currency can be used to buy goods and services but can also be a constraint to certain online groups such as a gaming or social network.

Digital currency is also known as digital money and cyber-cash. At the present time, the digital currency has only a restricted base of the user, and the regulatory framework, as well as tax treatments of digital money, is still advancing. The framework which is essential to help digital money is still being analyzed and developed. Crypto-money and virtual money are groupings of digital money or digital currencies. As payments can be done directly between payors and payees, digital currencies can remove mediators, steps of the process and costs related to the infrastructure in contrast to the traditional methods of payment which cannot avoid banks and clearing houses. Digital money can also help in making the flow of financial input more easily and clearly (Figure 1.1).

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Figure 1.1: Introduction to crypto-money/currencies. Source: https://upload.wikimedia.org/wikipedia/commons/thumb/b/b8/Cryptocurrency_logos.jpg/800px-Cryptocurrency_logos.jpg

There are many advantages linked with the digital money or digital currencies, which include the potential to make payment more easily, payments on time and with lower costs of the transaction. Another manner in which digital money can support organization is by removing or eliminating the risk of exposure by utilizing them as transport money. Currently, digital money is not accepted by the banks, and as a consequence, interest cannot be received on them by individuals or organizations. Along with that, there are also some risks linked with the digital money like security, the volatility of currency and beneficiary identification of the payment. Some fields of doubts such as the agreement with regulations and identification of customer along with the risk, constrain the acceptance of digital currencies in the industry of payments. Digital money is insubstantial in nature and can only be retained and managed in with the help of computers or electronic wallets which are associated with the internet or the chosen network. Unlikely, the physical currencies such as bank notes and minted coins which are touchable or having physical existence and transactions are possible only through their holders or owners who have their physical ownership. Similarly, to any standard fiat currency, digital money can be utilized to buy goods as well as to pay for any type of services; nevertheless, they can also find limited utilization between the certain online platforms such as gaming websites, gambling portal or other sites like social networking sites.

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Digital currencies are consisting of all fundamental qualities such as physical existence of currency, and they permit for spontaneous exchange or transactions that can be nonchalantly implemented for the completion of payment all across the globe. These transactions or exchange of money can be completed only when connected to supported devices and networks. For example, it is possible for an American to make a transaction in digital currency to a counterparty which is situated at a large distance, for example, Singapore, provided that they are both connected to the same network essential for the exchange or transaction in the digital currency. Digital currencies provide various numbers of benefits. As payment in digital currencies is made directly between the transacting parties without the help of any mediators, the transaction or exchange of the money are generally taking place on the spot or spontaneously and zero- to low-cost. This fares better compared to the traditional payment approaches which include bank or clearing house. Digital currency based on the electronic exchange of money also brings in the essential record keeping and transparency in the dealings.

1.1.1. Difference between Digital, Virtual, and Crypto Currencies Through the meantime, they exist in several number of variants, digital currencies can be measured a superset of virtual money and crypto-money.

1.1.1.1. Digital Currency If issued by a central bank of any nation in a controlled form, it is known as “Central Bank Digital Currency (CBDC).” On the other hand, the CBDC only exists in the form of theory, England, Sweden, and Uruguay are few of the countries that have well-thought plans to launch a digital version of their fiat currencies (Figure 1.2). Physical Currencies such as actual coin and notes in circulation are categorized as fiat currency. But in present time, most of the money transact with the help of electronic fiat currency through the utilization of online banking, or debit and credit cards with the help of platform of payment such as Visa, MasterCard or even PayPal. Only near about eight percent of the money is exchanged or transact in the form of physical currency all across the globe. The remaining ninety-two percent of the money is exchanged in the form of digital currency. Electronic money or digital money can be utilized interchangeably with the term digital currency.

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Figure 1.2: Digital currencies. Source: https://www.maxpixel.net/static/photo/1x/Bitcoin-Cryptomoney-Cryptocurrency-Btc-Cryptography-1813503.jpg

There is also an ever-increasing number of methods or approaches to make payment digitally which includes applications such as Snapscan, Zapper, etc. In the coming time, people will be able to make payments with the help of smartwatch; therefore modes of exchanging digital money or transaction of digital money are continuously increasing.

1.1.1.2. Virtual Currency (VC) Along with the regulated CBDC, a digital currency can also exist in unregulated form. In the latter case, it qualifies for being called a virtual currency (VC) and may be under the control of the currency developer(s), the founding organization, or the defined network protocol, instead of being controlled by a centralized regulator. Examples of such VCs include cryptocurrencies, and coupon- or rewards-linked financial systems (Figure 1.3).

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Figure 1.3: Virtual currencies (VCs). S o u r c e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 8 / 0 5 / 1 6 / 1 5 / 5 4 / B i t coin-3406171_960_720.jpg

Where the digital currency is a non-physical representative of fiat, virtual money signifies an online “asset” that has no value other than in the virtual world for example in a game or any other application. People would utilize digital money with the help of your online banking account or credit card to buy virtual money (in-app rewards). Virtual money cannot be utilized in any other realm other than the one it was produced for and is not backed by central banks or governments. Virtual money also does not have any physical correspondent real world.

1.1.1.3. Crypto Currency A crypto-money is another type of digital currency which utilizes uses cryptography to safeguard and verify transactions and to handle and control the production of new currency units. Bitcoins and Ethereum are the most common crypto-money. Through the meantime, crypto-money remains largely unregulated. Crypto-money is also considered to be VCs (Figure 1.4).

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Figure 1.4: Cryptocurrency. S o u r c e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 8 / 0 2 / 0 5 / 1 6 / 2 1 / B i t coin-3132574_960_720.jpg

1.2. TYPES OF DIGITAL CURRENCY Digital money is the new methods for exchange and transaction of the money in the coming years. The currencies are changing business, money as well as the world. As some of the governments accept the digital currency as a method of payment, it is significantly crucial for people to know some of these digital monies and how they function. When the digital money experienced their first major increment, a various number of different types began to dot the place in the market. But over the time, a small handful has increased more than the rest, in due course founding themselves as the leading or mostly used currencies in the present time. The following are ten types of digital currencies, which are currently used all across the world:

1.2.1. Ethereum Ethereum is a decentralized platform that operates smart contracts which is an application that operates as programmed without any opportunity or option of downtime, censorship, and fraud or third-party interference.

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These applications operate on a personalized built blockchain, an extremely powerful infrastructure that can move value around and show the ownership of the property all across the world (Figure 1.5).

Figure 1.5: Ethereum. Source:https://cdn.pixabay.com/photo/2018/05/23/18/00/cryptocurrency-3424632_960_720.jpg

This permits developers to produce markets, store archives of debts or promises, move financial inputs in agreement with the instructions given long in the past (such as, a will or a futures contract) and many other things that have not been developed till yes, all without a mediator or country risk. The project was bootstrapped with the help of an ether presale in the year of 2014, August by fans all across the world. It is created by the Ethereum Foundation, a Swiss non-profit, with participation from great minds all across the world.

1.2.2. Ripple In the beginning, it is released in the year of 2012 as the following iteration of Ripple pay. Ripple is a real-time gross settlement system (RTGS), exchange of currency and remittance network. Utilizing a common ledger that is handled by a network of independently authenticating servers that continuously compare records of transactions, Ripple does not depend on the energy and calculating rigorous proof-of-work used in Bitcoin. Ripple is based on a shared public database that utilizes a consensus process between

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those authenticating servers to safeguard integrity. Those authenticating servers can be belonging to anyone, from individuals to banks (Figure 1.6).

Figure 1.6: Ripple. Source: https://upload.wikimedia.org/wikipedia/commons/thumb/8/88/Ripple_ logo.svg/1280px-Ripple_logo.svg.png

The Ripple protocol (token represented as XRP) is meant to permit the near instantaneous and direct transfer of money between payer and payee. Any type of currency can be exchanged, ranging from fiat currency to gold to even airline miles. They claim to evade the fees and delay times of traditional banking and even transactions of cryptocurrency with the help of exchanges.

1.2.3. Litecoin Litecoin is a decentralized digital currency like Bitcoin. It utilizes the same techniques for encryption to transfer and produce financial inputs and to approve transactions. The foremost difference between Bitcoin and Litecoin is that Litecoin has a huge quantity of coins that can be produced, and Litecoin has a faster rate of transaction. Litecoin is a peer-to-peer cryptocurrency released under the MIT/X11 license. The currency of Litecoin is stimulated by and technically nearly alike to Bitcoin. Formation of Litecoin and transfer is based on an opensource protocol (Figure 1.7).

Figure 1.7: Litecoin.

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Alternative Currencies in the Digital Age

Source: https://upload.wikimedia.org/wikipedia/commons/3/32/Official_Litecoin_Logo_With_Text.png

1.2.4. Dash Dash is another type of digital currency. Dash is an immediate and semiprivate cryptocurrency which is based on the Bitcoin and Litecoin code base. Nevertheless, it consists of a number of changes and enhancement that have discriminated it since it debuts in the year of 2014. The creator of the project, Evan Duffield, built Dash to address three most important problems, Evan Duffield saw in the existing network of Bitcoin which is privacy, governance, and speed of the transaction. During the time period of last four years, Dash has climbed to become one of the top cryptocurrencies all across the globe, with its market cap dependably placing in the top twenty cryptocurrencies in the face of an extremely modest market (Figure 1.8).

Figure 1.8: Dash. Source: https://upload.wikimedia.org/wikipedia/commons/0/08/Dash_digitalcash_logo_2018_rgb_for_screens.png

The prime objective of Dash is to make digital cash more usable. In the present time, a person can send Bitcoin for online transactions and value transfer. Nevertheless, the delay time for the confirmation of the transaction on the blockchain makes it infeasible to utilize the Bitcoin for the transactions of in-store or other value transfers that need near-instant confirmation.

1.2.5. Peercoin Peercoin is also known as PPC. It was intellectualized in the year of 2013. One of the primary objectives of the Peercoin was to increase the excessive

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amount of electrical energy which is required to provide the necessary power to Bitcoin. The emphasis of Peercoin on a hybrid approach to mining was the main difference when it was compared to the structure of Bitcoin (Figure 1.9).

Figure 1.9: Peercoin. Source: https://upload.wikimedia.org/wikipedia/commons/thumb/f/f4/Peercoin_Logo.svg/1280px-Peercoin_Logo.svg.png

As its core, Peercoin is fundamentally a type of digital money that works on the technology of blockchain to continue an easily accessible public ledger which contains all records of transactions. Peercoin provides clarity and transparency, sideways with a relatively easy-to-use system of transfer and an open source codebase, just like what made Bitcoin the gold standard for those wishing to send and receive money without the need for a bank or other intermediary. Bitcoin is not without its problems; nevertheless, it is a fact that has impacted the developers to produce their own crypto-money (sometimes it is referred to as altcoins) to address some of these shortcomings.

1.2.6. Dogecoin Dogecoin is initiated in the year of 2013. Dogecoin is mainly based on the protocol of Bitcoin, but with some modifications. The currency of Dogecoin utilizes the technology of scrypt as a proof-of-work scheme. Its block time is sixty- seconds. There is no limit to the number of Dogecoin that can be created. The digital currency deals with many types of coins that are lesser in value individually. Consequently, it has low entry blockade and good for carrying out transactions of a small amount. Dogecoin is a fun, new, and quickly growing form of digital currency. This form of digital currency is called “cryptocurrency,” which is a type of digital currency. Cryptocurrency is completely anonymous, decentralized, and highly secure (Figure 1.10).

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Figure 1.10: Dogecoin. Source: https://farm1.staticflickr.com/531/19815634245_97a45c2039_b.jpg

1.2.7. Primecoin Primecoin is similar to Bitcoin as well as many other digital currencies. Primecoin uses a proof-of-work algorithm for mining. Nevertheless, instead of using the method of Hashcash, which is used by the other currencies, Primecoin as a substitute uses an algorithm that searches for, and verifies, specific types of prime numbers. These types of prime numbers which are known as Cunningham chains (of the first and second kind), and bi-twin chains were chosen for two main reasons: •

•

There are likely many of these chains that are not unusably huge; therefore it is valuable to seek for primes that are possible to verify with consumer-grade processors; and Using a formula which involves the length of the prime chains, and Fermat’s test, the developers were able to execute a difficult formula that would increase at a mostly linear rate with increasing hashing power.

1.2.8. Chinacoin Chinacoin is a Litecoin-based digital currency that uses the scrypt passwordbased key derivation function. At the moment, Chinacoin is produced in sixty-second blocks with about eighty-eight coins per block.

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1.2.9. Ven Ven is a digital currency that is designed to permit trade among members of Hub Culture and is used all across the globe. Ven was initiated in the year of 2007. The main objective of the Ven is to reduce the risk of inflation. The Ven value is determined on the financial markets from a basket of commodities, currencies, and carbon futures (Figure 1.11).

Figure 1.11: Ven. Source: https://upload.wikimedia.org/wikipedia/commons/4/4f/Ven_Digital_ Currency_Logo.png

1.2.10. Bitcoin Bitcoin is a digital currency and is created by the mysterious Satoshi Nakamoto. Similar to other currencies, Bitcoin can be utilized to purchase items locally and electronically. As a new user, Bitcoin can be used without understanding all its technical details. Once a person installs a Bitcoin wallet on the smartphone or computer, Bitcoin will generate the first Bitcoin address and the person can create more whenever he needs them. After creating Bitcoins, that person can use them for all types of real transactions (Figure 1.12).

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Figure 1.12: Bitcoin. S o u r c e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 8 / 0 8 / 0 5 / 1 0 / 5 8 / B i t coin-3585354_960_720.jpg

1.2.11. Altcoins An altcoin is any digital cryptocurrency which is similar to Bitcoin. The term is said to stand for “alternative to Bitcoin.” Altcoins can be used to describe any cryptocurrency that is not a Bitcoin. Altcoins are produced by deviating from Bitcoin consensus rules (which is the fundamental rules of the network of the crypto-money) or by developing a new cryptocurrency from scratch. Among all Alt coins, most common alt coins apply the same basic building blocks similar to Bitcoins. This method is comparatively much easier to carry out because Bitcoin is free and it is an open source platform. When an altcoin forks at the level of blockchain, a substitute system of consensus rules must be used, and the coin will have an entirely different distributed ledger. The same of this is true for altcoins which are built from scratch.

1.3. GOLD BACKED CURRENCY Gold-backed digitized currencies are particularly appealing to “gold bugs” because of their disbelief of government-backed fiat currencies. These individuals believe that central banking institutions can abuse their authority

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of printing more money and do so irresponsibly in such a way that results in hyperinflation. This belief is mainly predominant among those who live in volatile, underdeveloped nations, for example, Zimbabwe, and Argentina.

1.3.1. E-Gold In the year of 1996, oncologist Douglas Jackson has founded and created e-gold. E-Gold is a new digital currency which is fully backed by gold stored at several safe deposit boxes all across the globe. Permitting the transactions as small as one ten-thousandth of a gram of gold, e-gold was also the first micropayment system all across the globe. At the peak of its success in the year of 2008, e-gold processed over two billion dollars in transactions per year and had near about five million users all across the world. The main purpose behind the popularity of E-Gold also participates to its death. In the year of 2007, the United States Department of Justice has been charged Jackson and his two main directors with various numbers of counts of money laundering, conspiracy, and operating an unlicensed business of money exchange. The increasing success of e-gold attracted the attention of cybercriminals, who enjoyed the namelessness offered by the currency.

1.3.2 e-Bullion In the year of 2000, Jim, and Pamela Fayed has initiated e-Bullion, which permits users to transfer gold and silver between accounts with the help of digital technology. Even though e-Bullion was combined in Panama, it offered a debit card service to all customers of the United States, allowing them to change their bullion balances into United States Dollars. The company met its decrease or loss in the year of 2008 when Jim Fayed murdered his cofounder and wife. He was then sentenced to death, and the company was inspected and accused under the Patriot Act for money laundering, exchange of illegal money, and other criminal activities as well. Assets of all clients were held in custody when the company was shut down in the year of 2008, and one million users of e-Bullion were never compensated for their losses.

1.4. THE TECHNOLOGY BEHIND CRYPTOCURRENCY With time, as the application of internet has become an important and basic need of every person’s lives, the revolution of electronic commerce has

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evolved in such a way that, the person now can interact or can perform exchange of money of transactions online. With the internet, an increment in the interest in electronic payments and digital money. The concept of digital money, nevertheless, has been around during the time period of the 1980s and has since gathered an ironic history. As the Internet has become an integral part of our lives, the e-commerce revolution has transformed the way in which we interact and transact online. With it came a growing interest in electronic payments and digital money. The concept of digital cash, however, has been around since the 1980s and has since accumulated a rich history.

1.4.1. Secure The systems for digital payments should use high-quality techniques of encryption to safeguard a high level of security in such a way that online transactions or exchange of money cannot be counterfeited or changed (Figure 1.13).

Figure 1.13: Safety. S o u r c e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 8 / 0 4 / 1 6 / 2 3 / 2 4 / b l o c k chain-3326155_960_720.png

1.4.2. Anonymous Online transactions should be private and can only be accessible to those parties who are involved in between the exchange of money. The intractability of transactions is an optional, but a must require property (Figure 1.14).

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Figure 1.14: Anonymous. S o u r c e :h tt p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 7 /0 1 / 3 1 / 1 2 /1 0 / an o n ymous-2023760_960_720.jpg

1.4.3. Portable Digital cash should be autonomous or independent of any physical location, and easily transferrable with the help of the network.

1.4.4. Two-Way Digital payments should be peer-to-peer and occur between the users (instead of a registered entity, such as a credit card company).

1.4.5. Offline Capable Payments should be processed offline without requiring authentication of the third party. Users should be able to spend and receive money at any time and wherever under the presence of the internet.

1.4.6. Divisible Digital money should be fungible and can be divided into smaller units of cash. Most significantly, the digital transaction space is particularly exposed to the “double spending” issues. Because it is easy to make a duplicate of

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electronic files. A digital coin at the same time can be spent and retained in computer files of an individual, permitting that coin to be efficiently spent two times. Thus far, electronic payments have essential a trusted third-party intermediary, for example, PayPal or Visa which is used to verify the intent and genuineness of the transactions. Bitcoin is “revolutionary because for the first time the double spending problem can be solved without the need for a third party.”

1.5. BLOCKCHAIN 1.5.1. What Is Blockchain Technology? A blockchain in the simplest of terms can be defined as a time-stamped series of absolute record of data that is managed by a bunch of computers, which are not owned by any single entity. Each of these blocks of data (that is known as block) are protected and destined to each other using cryptographic principles (that is known as chain) (Figure 1.15).

Figure 1.15: Blockchain. Source: https://www.maxpixel.net/static/photo/1x/Cryptocurrency-VirtualBlockchain-Currency-Network-3277335.png

The network of blockchain has no central authority. Blockchain is the perfect definition of a democratized system. Since it is a shared and unchallengeable or absolute ledger, the data in it is open for anyone, and

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everyone can check out the data. Consequently, anything which is built on the blockchain is by its very transparent nature and everyone who is participated held responsible for their actions (Figure 1.16).

Figure 1.16: Blockchain technology. S o u r c e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 7 / 1 2 / 1 4 / 1 4 / 2 3 / b l o c k chain-3019120_960_720.png

A blockchain is free of cost of transaction. Blockchain requires infrastructure cost, but there is no cost for transaction. The blockchain is very simple but resourceful way of spreading information from A to B in a fully automated manner as well as in a safe manner. One party to a transaction initiates the process by creating a block. This block is confirmed by thousands or possibly millions of computers which are distributed around the internet all across the globe. The confirmed block is added to a chain, which is stored all across the internet and what they are producing is not just a distinctive record, but a distinctive record with a unique history. Misrepresenting a single would mean falsifying the complete chain in millions of occasions. That is virtually not possible. Bitcoin utilizes this type of model to perform the process of transaction of finances, but it can be organized in many other ways. In the world of finances and money, the uses are clearer, understandable, and the revolutionary changes more about to happen. Blockchains will

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change the way stock exchanges operates and work, loans are bundled, and insurances contracted. Blockchain will remove bank accounts and practically all services provided by the banks. Nearly, almost each and every company who operates and provides services related to finances such as banks, or who offers insurance services will go bankrupt or be forced to change fundamentally, once the benefits of a safe ledger without fees of the transaction is understood and executed on a wide range. After all, the financial system is constructed on taking a small cut of the money to provide a smooth flow or process of the transaction. Dealers form the bank will become basic advisers, not the gate-keeper of the money. Business person or financier will no longer be able to obtain in return as commission and the purchase or sell spread will vanish.

1.5.2. The Three Pillars of Blockchain Technology The most important or prime qualities of the technology of blockchain which has supported to earn awareness acclaim are as mentioned below: Decentralization; Transparency; Immutability. Decentralization: Before the initiation of Bitcoin and BitTorrent, most of the people were utilizing the services which are centralized in nature. The idea is very simple. People have a centralized identity or existence which kept all the information, and that individual person has to interact merely with this identity or existence to get whatever the data or information needed. Another example of a centralized system is the banks. Banks kept all of the money, and the only way that a person can pay someone is by going through the bank. • • • 1.

The traditional client-server model is a perfect example of this (Figure 1.17).

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Figure 1.17: Traditional client-server model.

•

Transparency: One of the most exciting, fascinating, and misinterpreted perceptions or ideas in the technology of blockchain is “transparency.” Some of the people say that the blockchain offers privacy. On the other hand, some say that the blockchain is transparent in nature. If the identity of a person is hidden with the help of complicated cryptography and represented only by their public address. Consequently, if a person is looking for the history of his transactions, then the person will not see “Bob sent 1 BTC” in the place of that he will see “1MF1bhsFLkBzzz9vpFYEmvwT2TbyCt7NZJ sent 1 BTC.” Therefore, while the real identity of that person is safe, the person will still see all the transactions that were done by their public address. The transparency of this level has never existed before within a financial system. It adds that extra, and much-required level of the responsibility which is needed by some of these largest institutions. •

Immutability: It is in the context of the blockchain, which means that once something has been entered into the system of blockchain, and then it cannot be interfered with. In simple words, hashing means taking an input string of any length and giving out an output of a fixed length. In terms of the crypto-money such as Bitcoin, the exchange of money or process of transaction are taken as

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an input and operate with the help of an algorithm of hashing (Bitcoin uses SHA-256) which provides an output of a fixed length (Table 1.1). Table 1.1: Technologies of Blockchain Blockchains are built from 3 technologies 1. Private key cryptography

2. P2P Network

3. Program (the blockchain’s protocol)

Cash VS Plastic

Tree falls in a forest

Identify

System of Records

Tragedy of the commons Platform

1.5.3. Smart Contracts A smart contract is a code which is capable of being done and that operates on the technology of blockchain to simplify, implement, and impose the terms of an agreement. The primary objective of a smart contract is to automatically implement the terms of an agreement once the mentioned conditions satisfy. Therefore, smart contracts guarantee a low cost for transaction as compared to the traditional systems that need a trusted or a verified third party to impose and implement the terms of an agreement. The concept of the smart contract came from Szabo in the year of 1994. Nevertheless, the concept did not see the light until the development in the technology of blockchain. A smart contract can be thought of as a system that releases digital assets to all or some of the participated parties once random pre-defined rules have been met. For example, John sends an amount of currency units to Edwin, if he receives B amount of currency units from Lewis. Several numbers of various definitions of a smart contract have been mentioned and discussed in the literature. In that literature, the author categorized all possible definitions into two categories. In addition, the author named them as smart contract code and smart legal contract. Smart contract code means “code that is stored, verified, and implemented on a blockchain.” The potential of these smart contracts depends completely on the language of the programming that is used to explain the contract and the benefits of the blockchain. Smart legal contract means code to complete or replacement authorized contracts. The potential of this smart contract does not depend on the use of technology, but in the place of legal, political, and business institutions (Figure 1.18).

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Figure 1.18: Smart contract system. Source: https://airccj.org/CSCP/vol7/csit77211.pdf

A smart contract has an account balance, a private storage and implementing code. The contract’s state includes the storage and the balance of the contract. The state is kept on the blockchain, and it is updated each time the contract is raised shows the smart contract system. Each and every contract will be assigned to a distinctive address of twenty bites. Once the contract is organized into the blockchain, the code of the contract cannot be altered. To operate a contract, users can simply send a transaction to the address of the contract. This transaction will then be implemented by every agreement mode (which is known as miners) in the network to reach an agreement on its output. The state of the contract will then be updated according to that. The contract can, based on the transaction which is received by this, read or write to its private storage, kept the money into its balance of the account, send or receive messages or money from the users as well as other contracts or even can produce new contracts. There are mainly two types of smart contracts. These two smart contracts are deterministic and non-deterministic. A deterministic smart contract is a smart contract which when operates run then it does not need any data

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from an external party or information from outside of the system of the blockchain. A non-deterministic smart contract is a contract which depends on the data (which is known as oracles or data feeds) form an external source or from outside of the system of the blockchain. For instance, a contract that needs the information of the present temperature or weather to be operated, but it is not available on the system of the blockchain.

1.5.4. Platforms for Smart Contracts Smart contracts can be created and can be used in various numbers of platforms of the system of the blockchain. For example, Ethereum, Bitcoin, and NXT). Several different platforms provide unique important factors or elements for the generation of smart contracts. Some other platforms which support programming of a high-level language to create new smart contracts. There are three prime platforms which are mostly used in the public sector. • • • i.

Ethereum; Bitcoin; and NXT. Bitcoin is a public blockchain platform which can be utilized to process all transactions which are taking place in crypto-money or cryptocurrency. Although, Bitcoin has a very constrained potential to commute. Bitcoin uses a unique bytecode scripting language which is based on the stack. The potential of producing a smart contract with high-level logic with the help of Bitcoin scripting language is very constrained. In Bitcoin, a simple logic that needs more than one signatures to sign a single transaction before verifying the possibility of the payment which is done. Nevertheless, writing contracts with complicated logics are not possible because of the shortage of the scripting language of the Bitcoin. The scripting language of Bitcoin, for instance, neither supports loops nor the limit to withdrawal money. To execute a loop, the only opportunity is by repeating the code as many times, which is not effective at all. ii.

NXT is a public blockchain platform which consists of built-in smart contracts as templates. NXT only permits creating new smart contracts with the help of those templates. NXT does not, nevertheless, permits personalized smart contracts because of the unavailability of Turing-completeness in its scripting lan-

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guage. iii. Ethereum is a public blockchain platform which can help enhanced and personalized smart contracts with the help of Turing-complete programming language. The public platform of Ethereum can also help with the limits of withdrawal, loops, financial contracts and markets of gambling. The code of Ethereum smart contracts is written in a bytecode language which is based on the concept of the stack and implemented in Ethereum Virtual Machine (EVM). Various numbers of high-level languages (such as Solidity, Serpent, and Low-Level Lisp Like (LLL)) can be used to write smart contracts of Ethereum. The code of those languages can then be accumulated into EVM bytecodes to be operate or run. At the present time, Ethereum is the most commonly used platform for the creation of smart contracts.

1.5.5. Smart Contract Application There are various possible applications where smart contracts can be applied, and some of these applications are as follows: •

•

•

Internet of Thing and Smart Property: There are huge numbers of nodes that are sharing information between each other with the help of the Internet. A capable use case of smart contracts which are based on blockchain is permitted those nodes to share or access several digital properties without a trusted third party. There are several numbers of institutions or companies that inspect this use case. For instance, Slock is a German company that uses smart contracts which are based on Ethereum for renting, selling or sharing anything (for example, selling a car) without the participation of a trusted third party. Music Rights Management: A capable use case is to record the rights of the ownership of a music in the system of blockchain. A smart contract can impose the payment for the owners of the music, once the music is used for commercial purposes. It also confirms the payment is being shared between the owners of the music. Ujo is a company that inspects the use of smart contracts which are based on Blockchains in the industry of the music. E-Commerce: A capable use case is to simplify and enable the deal between the untrusted parties (for instance seller and buyer) without the involvement of a trusted third party. This would be

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the outcome in a decrement in the cost of trading. Smart contracts can only release the payment to the seller once the buyer is pleased or satisfy with the product or service they received. There is other various numbers of possible applications such as e-voting, mortgage payment, digital right management, motor insurance, distributed file storage, identity management, and supply chain.

1.5.6. Risks Similar to any of the other important revolutionary invention, the technology of blockchain acquaint with some risks. The section discussed below will consider some of these risks. •

Fork: The protocol of the Bitcoin can be changed if the participants of the network or at least a sufficient count of them agree with the advancement which is recommended. It can happen (and in fact happened) that a blockchain ruptures just because of the several numbers of groups cannot come to an agreement about advancement. A split in a blockchain that persists mentions as “fork.” The two best-known examples of persistent splits are the Bitcoin cash Fork and ideological dissent of Ethereum, which outcome as the split to the Ethereum and Ethereum Classic. • Energy Wastage: Proof-of-work mining is very costly in nature, as it utilizes a great amount of energy. There are the people who disparage Bitcoin and proclaim that a centralized accounting system is more effective because the agreement can be achieved without the distribution of huge quantities of computational power. Nevertheless, the circumstances are not so clear-cut. Systems for centralized payment are also very costly in nature. Above and beyond, infrastructure, and cost of operations, one would have to analyze the obvious and unspoken cost of the central bank. Costs of the salary should be adding up between the obvious cost and the possibility of scam in the currency monopoly between the unspoken costs. In addition, several numbers of crypto assets utilize the substitute protocols of the agreement, which do not rely on computational resources. Bitcoin shares various numbers of resemblances with these types of currencies. Both are digital, and liquid permits the transfer or flow of financial inputs among the user accounts and are relatively unidentified as compare to the traditional methods of payment. Nevertheless, what makes Bitcoin a ground-breaking currency are the differences.

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First of all, Bitcoin is well thought-out fiat money and deficiencies of backing by any physical article of trade or product. Secondly, Bitcoin is not controlled by any governing authorities. Still, it cannot be freely minted. Finally, just because the Bitcoin is totally decentralized, there exists great ambiguity in terms of which regulatory jurisdiction the currency belongs to. The cost of a Bitcoin is highly volatile. The answer to the above question is no. This is so because the price of Bitcoin also relies on the aggregate demand of the Bitcoin. The regularized supply of money, which is able to meet the ever-changing aggregate demand, results in the fluctuation of the prices of the Bitcoin. On the other hand, the prices of the money in the fiat currency systems are just the opposite. In the government-controlled fiat currency systems, the central bank sets the target to adjust the constant supply of the money in response to fluctuations that are being observed in the changing aggregate demand for money. This is done in order to make the price levels steady in the fiat currency system. There is an example of the Federal Reserve System of the United States of America. In the Federal Reserve System, it has been explicitly founded that it provides an elastic currency to alleviate the fluctuations in the prices of the currency. These fluctuations arise from the changes in the aggregate demand for the U.S. dollar. Due to the absence of such a mechanism or functionality in the current currency system of Bitcoin protocol, it is very likely that the units currency of the Bitcoin might show fluctuations which have a high amplitude, but the duration of these fluctuations is much short than the fluctuations that are observed in many government-run fiat currency units.

1.6. DECENTRALIZED APPLICATION DApps is a term used for referring the decentralized applications used in the blockchain ecosystem. DApps is one of the most fascinating terms that are used in the application space of the blockchain. The term DApp is invented by the combination of two words- decentralized applications. In a layman’s language, DApps can be considered as applications, tools or programs that are used for the completion of the work on the decentralized platform of Ethereum Blockchain (Figure 1.19).

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Figure 1.19: Applications of a decentralized system. Source: https://upload.wikimedia.org/wikipedia/en/f/fa/Unstructured_peer-topeer_network_diagram.png

According to the definition that is available on Wikipedia, “A decentralized application (dapp, Dapp, dApp or DApp) is an application that is run by many users on a decentralized network with trustless protocols. They are designed to avoid any single point of failure. They typically have tokens to reward users for providing computing power.” To understand the meaning of the definition of DApps better, it is important to first understand that how the traditional web applications work and also, how are these DApps stand apart from the rest of the applications? In the traditional web apps, there are two critical elements that are required to make the system usable. These two elements are the front end and the back end. These elements connect with each other in the form of coding messages. This connection is done through the usage of the HTTP protocol. There are many issues that are involved with the traditional web applications. When compared with DApps, there are many aspects which are required to be addressed and tackled with technical capabilities. First of all, this kind of application servers are hosted on such hosting services that use a centralized architecture of the design of the hosting server.

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This leads to an easy target of the single point of failure, whenever there is any malicious attack or any virus intervention in the centralized architecture of the server. Moreover, it is very easy to bring down the application with the centralized architecture of the server. This requires the hacker only to interrupt with the centralized hosting service. When the whole network is dependent on the centralized structure of the server, the data stored in the server is more vulnerable to malicious and hacking attacks. On the other hand, the Decentralized applications are very useful. These applications can be used to connect with different people present in various places like marketplaces, help the different users in sharing the resources and gives a viable option for storing the data. The Decentralized apps also help in maintaining cryptos as well as executing smart contracts without providing any ownership to a single central authority. Currently running DApps include tools for storage, security, and servers, etc. Other than these, some of the apps are created in the form of digital wallets that gives people the access to manage their cryptocurrencies.

1.6.1. Features of Decentralized Application Though DApps are recently introduced with these many use cases, they have become popular and are in demand too. Some common features that make decentralized applications noticeable are (Figure 1.20):

Figure 1.20: Features of decentralized applications.

•

Open Source: In closed-source applications, the end users are required to trust the creators and the developers of the applications in terms of decentralization. This is so because the user cannot directly access their data through any central source. Thus, the closed-source applications are always exposed to risks for the data of the users when it comes to using these apps. DApps, on the other hand, is based on the decentralized network and open source applications. A DApp creates a new structure specifically for the business practices. This allows all the network participants to keep the

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track and manage the happenings on the network. All the members of the network have the access to keep the record of the events on the network rather than one person. The DApps are governed by the autonomy form of system, and any kind of changes in the DApp structure and functionality are decided through the consensus or the majority of users. The code base of a DApp should be available for study so that regular improvements can be brought in the network. •

Decentralized Consensus: Before the introduction of Bitcoin, the rationality of any transaction has always required a level of centralization. When someone wants to make a payment, the transaction was put in front of a clearinghouse that monitors and accepts the request of the payment. In a DApp, a transaction is proceeded through a consensus methodology. When the majority of the nodes have given the approval for the transaction, the transaction is forwarded in the network and eventually gets processed. Also, there are incentives available for the members of the network who validates the transactions. This rewarding takes place by providing them the benefits or the rewards in the form of cryptographic tokens. •

No Central Point of Failure: The DApps do not rely on one single server and are distributed in their basic structure. So, there is an absence of the single and central point of failure. DApps allow the users to store their data in them. This data is then made to be decentralized across all the functional nodes of the network. Moreover, these nodes are independent of each other’s functionality. This provides a benefit for the data and the users of the network. The major benefit is that in case of failure of any one node, the other nodes do not get affected. Their functionality will be in the proper shape on the network accordingly.

1.6.2. Decentralized Applications versus Smart Contracts One of the biggest fallacies that rises when learning about ‘DApps’ is dealing it to smart contracts. Although the latter two have more equal concepts in terms of how they work, they are poles apart and should not be in any way compared. The two differences between the said two are described below:

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A professionally smart contract is a mechanism which involves digital possessions and two or more groups, where some or all of the groups put assets in, and assets are automatically varied among those groups in accordance with the formula based solely on certain data that is not called at the time the contract is started. Smart contracts basically contain all the information in relation with the transaction and only proceeds with the end resulting actions once the requirements are being met. What differentiates professional, smart contracts from the usual paper contracts are that smart contracts are basically digital generated. A non-centralized application is similar to the professional, smart contract but varying in two chief different ways. The first one is that the decentralized application has a limitless number of members on all the corners of the market. The second one is that the decentralized applications do not basically have to be financial or related to financial aspects. There are various DApp blockchain stages available, which include Ethereum, Cardano, NEO, and HashGraph. With numerous other pros and cons in between them, these stages allow developers to easily program these new applications.

1.6.3. Benefits of Decentralized Applications After the things that have been aimed, have been accomplished, the DApps demonstrate that they can be quite revolutionary in their work. Because of the distributed kind of framework DApps possess, their security is integral to them. This security, when united with the technology of blockchain, makes up a smooth conjunction that can be helpful in the uses of cryptocurrency. This happens due to a reason that the blockchain technology stores data in a manner which prevents it from being altered by some unauthorized personnel as it requires all the hosts of the data to give their agreement in favor of the change. This happens because the value entered for the data is included into the hashed value of the following entry. In addition to this, cryptocurrency proves to be an essential element in quite a few DApps in a manner that it gives rewards to the content creators and provides good incentives to the people who host a “full node.” “Full node” is a replica of the whole blockchain of DApp that inherits transactions that may be coming in only after it has verified them through the process of “mining.” There are a lot of DApps that generates an internal code that is different from any other platform and may be inferred only by that particular DApp.

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The most significant thing about DApps is their ability to be secure against any kind of hacking. This makes it possible for the data to be fully resistive against any intrusion from the outside world which may particularly involve some huge companies. Many of the applications that have been in use till now rely heavily on some sort of vital authority to make the transactions and take important decisions regarding the framework of the platform they are functioning on. However, DApps have an edge over them by functioning completely on their own ability, once they are initiated. This points to the fact that they are independent of any intrusion or operation from the external world, irrespective of the authority that is working on it, be it any developer, corporation or a government body. In essence, when all these elements are combined, they facilitate the DApps in a way that they can eventually revolutionize everything, regardless of the fact that the technology is still in the blooming phase of its evolution.

1.7. MINING OF CRYPTOCURRENCY Cryptocurrency mining or ‘crypto mining,’ may be defined as a process that involves the verification of the transactions for different sorts of cryptocurrency and are supplemented to the digital copy of the blockchain. Since the utilization of cryptocurrency has increased manifolds over the recent years, the subject of cryptocurrency (popularly known as altcoin mining, crypto coin mining or Bitcoin mining) has gained attention from different parts of the world (Figure 1.21).

Figure 1.21: Mining of cryptocurrency. S o u r c e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 6 / 1 0 / 2 2 / 1 2 / 4 1 / B i t coin-1760652_960_720.png

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Every time a transaction is initiated involving cryptocurrency, the job of miner is to make sure that the data that has been fed is authentic and that the transaction has been updated in the blockchain. The job of the miner in itself is to contend with the other miners on the cryptocurrency to make sure that complex mathematical situation is solved with hash functions that are used in cryptography. These hash functions may be related with the part of the blockchain that stores the data regarding the transaction. The first miner that is able to hack into the secure code involving cryptocurrency can use the data to authorize the transactions. The reward, for the job crypto miners does, is a generally a significant share of the transacted amount in the form of cryptocurrency. To carry out the whole work in the most effective way, the crypto miner requires a properly equipped computer.

1.7.1. Mining Hardware The hardware that has been used to mine the blocks over the time includes several kinds of hardware. They are described in the following way: •

•

•

•

CPU Mining: In the early stages of Bitcoin evolution, the users used to utilize their CPUs to carry out the process of mining. Later, the introduction of GPU mining made it unwise in terms of financial approach to use CPU for mining. This happened because hash rate of the network became so large that the number of Bitcoins that were being generated by the CPU preceded the cost incurred in providing power to run the CPU. Hence, CPU was taken out as an option for the generation of Bitcoins. GPU Mining: It has proved to be able to generate Bitcoins at a much faster pace than the CPU mining and has found a place in the hardware usage. FPGA Mining: In comparison to GPU mining, FPGA mining is much faster and more efficient and has a major advantage in all aspects over CPU mining. In FPGA mining, there has been a report of consumption of power in extremely low amounts and the hash rates have been reported to be extremely high at the same point of time. This is what makes them more efficient than GPU mining. ASIC Mining: Application Specific Integrated Circuit (ASIC) can be defined as a microchip that has a very specific purpose to serve through its design and production. It was in 2013 that ASICs came into picture to be used for Bitcoin mining. When they are

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compared with all other technologies, they are drastically better in terms of speed as against power consumed and have already rendered GPU mining financially inefficient. • Mining Services (Cloud Mining): The mining services may be offered by ‘mining contractors,’ in which they provide a certain level of mining efficiency depending on the prize and the contract they may sign with the client, which is commonly called ‘mining contract.’ A few mining software that is made use of in mining are described as following:

1.7.2. Mining Software Software mining is a process in which the knowledge acquired in the field of modern software development is applied to the mining process. This application also involves reverse engineering. A few mining software that is made use of in mining are described as following: •

CGminer: It has been established GPU/FPGA/ASIC mining software for quite some time. This software is a command line that has been coded in C language. It has an advantage of being used across a variety of platforms such as Windows, Linux, and Mac OS. This software has the provision for overclocking, monitoring, controlling fan speed and an interface that can remotely be operated. It has multi-pool support as is evident with the application in ASIC, FPGA, and GPU. These qualities make this software a wholesome solution to all the mining related problems. •

BFGminer: In contrast to CGminer, BFGminer is only applicable to FPGA and ASICs. It cannot be used in GPU mining. It caters to the needs of audience that like to alter a lot by providing them features like dynamic clocking, monitoring, and ability to be controlled remotely. This software can also be used across various platforms including the Raspberry Pi that makes it quite attractive. Being able to be operated through text, it has a very simple interface and may use hotkeys to explore various options it provides. 1.

BitMinter: It is an extremely widely used mining pool that was

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initiated with a vision to develop a software that is user-friendly. Its USP lies in it being fast and easy to work on. BitMinter may differ from others due to it being software that fits in a mining pool. That makes it important that user’s first step is to register and fill in the pool sign-up form. Hence, it is a great option if one is looking for a simple installation. In addition to being available for operative systems like Windows, Linux, and Mac OS X, BitMinter make sure that the mining speed is well maintained and that there is long polling so that the redundant work is removed. 2. MultiMiner: It is based on BFGminer and is most suitable for the beginners in the field of mining. It has a good graphics configuration and is appropriately powerful. Besides, it is very simple in its solutions for the Bitcoin mining needs. It automatically creates a table with the needed information at the time of completion of the installation by detecting the installed hardware. 3. EasyMiner: It is a GUI-based version of BFGminer and CGminer. It has been designed keeping in mind the miners who do not like to work on the well-known mining tools that are based on Command Line Interface. This software provides the users with graphical representation of the statistics and performance variables that makes it visually attractive and easily comprehensive. EasyMiner is a GUI-based version of BFGminer and CGminer. It has been designed keeping in mind the miners who do not like to work on the well-known mining tools that are based on Command Line Interface. This software provides the users with graphical representation of the statistics and performance variables that makes it visually attractive and easily comprehensive.

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REFERENCES 1.

99 Bitcoins, (2018). 5 Best Bitcoin Mining Software to Use in 2019 | 99 Bitcoins. [online] Available at: https://99Bitcoins.com/Bitcoin-mining/ software/ (Accessed on 7 May 2019). 2. 99 Bitcoins, (2018). What is Primecoin? The Prime Number Hunter. [online] Available at: https://99Bitcoins.com/what-is-primecoin/ (Accessed on 7 May 2019). 3. Alharby, M., & Moorsel, A., (2017). Blockchain-based smart contracts: A systematic mapping study. Computer Science & Information Technology (CS & IT). [online] Available at: https://airccj.org/CSCP/ vol7/csit77211.pdf (Accessed on 7 May 2019). 4. Bauerle, N., (n.d.). What is Blockchain Technology? – CoinDesk. [online] CoinDesk. Available at: https://www.coindesk.com/information/whatis-blockchain-technology (Accessed on 7 May 2019). 5. Benjamin, N., (2018). What is Litecoin? – Cryptocurrency Facts. [online] Cryptocurrency facts. Available at: https://cryptocurrencyfacts. com/what-is-litecoin/ (Accessed on 7 May 2019). 6. Berentsen, A., & Schar, F., (2018). A short introduction to the world of cryptocurrencies. Review, [online] 100(1), pp. 1–19. Available at: https:// files.stlouisfed.org/files/htdocs/publications/review/2018/01/10/ashort-introduction-to-the-world-of-cryptocurrencies.pdf (Accessed on 7 May 2019). 7. BitIRA, (2019). Types of Cryptocurrencies | Bitcoin, Ethereum & More | BitIRA. [online] Available at: https://www.bitira.com/digital-ira/ types-of-digital-currency/ (Accessed on 7 May 2019). 8. En.Bitcoin.it., (2018). Mining – Bitcoin Wiki. [online] Available at: https://en.Bitcoin.it/wiki/Mining (Accessed on 7 May 2019). 9. Ethereum.org., (2018). Ethereum Project. [online] Available at: https:// www.ethereum.org/ (Accessed on 7 May 2019). 10. Frankenfield, J., (2018). Digital Currency. [online] Investopedia. Available at: https://www.investopedia.com/terms/d/digital-currency. asp (Accessed on 7 May 2019). 11. Garner, B., (2018). What is Dash? | A Guide to the Instant, Private Cryptocurrency. [online] CoinCentral. Available at: https://coincentral. com/what-is-dash/ (Accessed on 7 May 2019). 12. Gordon, S., (2019). What is Ripple? [online] Bitcoin magazine. Available at: https://Bitcoinmagazine.com/guides/what-ripple/

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14.

15.

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(Accessed on 7 May 2019). Orgera, S., (2018). Everything You Need to Know About Peercoin. [online] Lifewire. Available at: https://www.lifewire.com/what-ispeercoin-4154009 (Accessed on 7 May 2019). Peng, S., (2013). Bitcoin: Cryptography, Economics, and the Future. [eBook] Pennsylvania. Available at: https://www.cis.upenn.edu/currentstudents/undergraduate/courses/documents/EAS499BitcoinThesisStarryPeng.pdf (Accessed on 7 May 2019). Pratap, M., (2018). What are Decentralized Applications, DApps?. [online] Hacker noon. Available at: https://hackernoon.com/what-aredecentralized-applications-dapps-3b63b4d587fe (Accessed on 7 May 2019). Rouse, M., (2017). What is Altcoin? – Definition from WhatIs.com. [online] WhatIs.com. Available at: https://whatis.techtarget.com/ definition/altcoin (Accessed on 7 May 2019). Scott-Briggs, A., (2016). 10 Types of Digital Currencies and How They Work. | TechBullion. [online] TechBullion. Available at: https://www. techbullion.com/10-types-digital-currencies-work/ (Accessed on 7 May 2019). Stroud, F., (2019). What is Cryptocurrency Mining? Webopedia Definition. [online] Webopedia.com. Available at: https://www. webopedia.com/TERM/C/cryptocurrency-mining.html (Accessed on 7 May 2019). Tapscott, D., Tapscott, A., & Mougayar, W., (2019). What is Blockchain Technology? A Step-by-Step Guide for Beginners. [online] Block geeks. Available at: https://blockgeeks.com/guides/what-is-blockchaintechnology/#What_is_Blockchain_Technology (Accessed on 7 May 2019). Team, C., (2018). Decentralized Applications. [online] Medium. Available at: https://medium.com/coinbundle/decentralizedapplications-e695d8a54555 (Accessed on 7 May 2019). Techopedia.com., (n.d.). What is Digital Currency? – Definition from Techopedia. [online] Available at: https://www.techopedia.com/ definition/6702/digital-currency (Accessed on 7 May 2019). Westhuizen, M., & Govender, N., (2019). The Digital Age of Currency and Markets. [online] Citadel wealth management. Available at: https:// www.citadel.co.za/insights/articles/the-digital-age-of-currency-and-

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markets/ (Accessed on 7 May 2019). 23. Weusecoins.com., (2018). What is Dogecoin? [online] Available at: https://www.weusecoins.com/what-is-dogecoin/ (Accessed on 7 May 2019).

Chapter 2

Economy and Alternative Currencies

CONTENTS 2.1. Introduction ...................................................................................... 40 2.2. The Political Economy Approach: Addressing Alternative Economies In Relation To Capitalism .............................................. 43 2.3. Factors Influencing The Basic Model of Capitalism (Figure 2.2) ......... 45 2.4. Cryptocurrencies And The Economics of Money ............................... 47 2.5. Cryptocurrency: Threat To The Economy or New Possibilities ............ 48 2.6. Effect of Cryptocurrency on Global Economy.................................... 52 2.7. Economic Consequences of Cryptocurrencies and Associated Decentralized Systems.................................................. 59 2.8. Outstanding Issues Around the Cryptocurrency Market ..................... 61 2.9. Corporate Debt, Cryptocurrencies & The Next Financial Crisis.......... 63 References ............................................................................................... 67

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Alternative currencies have regularly appeared for at least past 500 years, generally coming out of the equivalent socio-economic situations. As the technology shocks and regulatory shifts account for various challenges that alternative currencies have faced in attaining wider adoption. Alternative currencies have a greater impact on the economy. The chapter initially deals with the political economy approach: addressing alternative economies in relation to capitalism and the factors influencing it. Further, it talks about the effect of cryptocurrencies on the economy in detail. At the end of the chapter, extreme issues around the market of cryptocurrency have been described.

2.1. INTRODUCTION Digital currencies and mainly those that have an implanted decentralized mechanism of payment based on the utilization of a distributed ledger are in an innovation which could have a variety of impacts on different parts of the financial markets as well as the broader economy. These impacts might comprise the potential disturbance to the business models as well as systems, and facilitating modern economic linkages and interactions. Particularly, the strong implications of digital currencies on the retail payment services appears to be very important, as these schemes have the strength to enable few retail payment transactions, for example, cross-border transactions, e-commerce, and person-to-person payments, and make them less expensive and faster for the end users like merchants and consumers (Figure 2.1). The technology of distributed ledger underlying various schemes related to digital currency could have a wide application other than payments. The decentralized mechanism which exchanges the value depending upon a distributed ledger technology change the fundamental setup of aggregation. Particularly, it is feasible that distributed ledger could have a huge impact on the registration of shares, derivative trades, bonds or on the pledging of collateral. The utilization of distributed ledgers may induce different changes in clearing, trading as well as settlement as they could substitute disintermediation of the conventional service providers in different infrastructures and markets.

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Figure 2.1: A form of alternative currencies.

Source: http://theconversation.com/alternative-currencies-are-the-futurewhy-it-matters-for-development-80036 These alterations may result in a strong impact on the retail payment systems, such as central securities depositories, large-value payment systems, trade repositories or security settlement system. The growth of smart contacts based on the distributed ledger technology are capable of implementing payments under suitable conditions may develop the chance of making variation margin payments on the basis of an individual contact. Significantly, this could change the bilateral clearing and managing with net positions as well as collateral pools. Digital currencies, as well as technologies based upon the distributed ledgers, could challenge the intermediation role of the present actors in the financial systems mainly in banks. Banks are known as the financial intermediaries that accomplish the role as a substitute monitor of the borrowers on the behalf of depositors. Typically, the banks perform the maturity and liquidity transformation in the money channeling from the depositors to the borrowers. If digital currencies along with the distributed ledgers were to become prevalent, any assuring disintermediation may have a great impact on the mechanisms for saving or retrieving credit. It is not clear that who would take up the responsibilities of customary financial intermediaries in an economy based

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upon the utilization of these schemes or whether these kinds of services could be offered at all in such a context. If the acceptance, as well as utilization of the digital currencies, was to significantly increase, the demand for current monetary aggregates and the manner of monetary policy could be easily affected, however, at the present, the utilization of the private digital currencies seems very low for these kinds of risks to materialize. The impact of the digital currencies in these sectors would have various similarities with the strong impact of e-money. The effect of digital currency on the execution of monetary policy will totally depend on the change in demand for the reserves of bank and the level of economic as well as financial interconnections between the operators of sovereign currency as well as the operators of the digital currency. If the interconnection is weak and the substitution is large, then the monetary policy may lose efficiency. In addition to that, an important expansion of the digital currency could increase a huge number of technical problems related to the correct definition of monetary aggregates, if the digital currencies were not designated in the sovereign currency specially. As a huge number of individuals are getting involved in cryptocurrencies in any way, mainly retail instead of the professional investors, regulators have reserved an intense eye on the industry. It is not only Bitcoin at which they are looking. The crypto-space has sustained to grow with the initial coin offerings (ICO). The developments have gained a diverse response from the regulators present all around the world in numerous areas. Every authority has seen different parts of the crypto-world from the process of mining to trading and evaluated how they must be regulated.

2.1.1. Exchanges, Trading, and Mining Regulation around this sector is related to the approach by which cryptocurrencies are traded. There is a huge debate in the jurisdiction regarding the classification of cryptocurrencies. Are cryptocurrencies securities or commodities? The way they are classified will recognize how they are further regulated under current laws. Few nations have moved to the introduction of modern regulation related to cryptocurrencies. For the regulators, another area of focus has been the operations of mining. Mining is a process which involves the purpose-built computers as

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well as great consumption of electricity, something that has concerned the government, mainly in China.

2.1.2. Crowd Funding and ICOs ICOs are a different way for the companies so as to increase money by introducing a modern digital token in the exchange for cryptocurrency such as Bitcoin. Various researchers took a detailed look at the process which has usually proved to be controversial because of the number of scams where the founders of several fake companies have run off with the money. There is a vibrant risk with ICOs. Numerous companies are looking to raise money despite of having any products yet. In various jurisdictions, regulation around the ICOs is in the grey region, but few countries have looked to carry them in the regulatory fold.

2.1.3. Financial Products Along with the increased use of cryptocurrencies, professional investors are eyeing to get into the space. The exchanges of cryptocurrency have generally been observed as risky because of the various hacks and the unregulated nature of trading on these kinds of exchanges. Therefore, there has been a major drive to bring structured financial products on the conventional market. All over the world, regulators as well as governments are trying hard to conclude the future of cryptocurrencies and the blockchain. It is not clear cut. Few countries such as China have come down very hard on the emerging industries. On the other hand, small territories and countries have welcomed it open-heartily. Everyone is approaching this technology in a completely different manner. One this which is clear is that over the course of coming few years, new legislation will come into existence which will bring cryptocurrencies as well as blockchain into the regulatory fold.

2.2. THE POLITICAL ECONOMY APPROACH: ADDRESSING ALTERNATIVE ECONOMIES IN RELATION TO CAPITALISM In today’s world, capitalism is considered as a dominant economic system, and it is assumed that it will remain the same for some time. The major

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competitor of capitalism is socialism, which has been immeasurably weakened by the downfall of the Soviet Union. Where socialism still conquers for example, in the People’s Republic of China, severe attempts are made so as to turn the complete economic system in the direction of capitalism, so that it will work in a more significant way. According to DENG Xiaoping, “It doesn’t matter if the cat is white or black as long as it catches mice.” As the dominance of capitalism being an economic system as well as growth machine has captivated various economists for several years. This has not been the exact case related to sociologists. For sociologists, capitalism has been mainly of interest just for its social effects, for example, how it has led to the anomie, class struggle, inequality, and social issues. Capitalism being an economic system has been of quite less interest, in its own right. Few of these reactions have perhaps to do with the unlucky division of labor that has been developed between sociologists and economists in the 19th century. At that time, economy was studied by economists and the society of sociologists minus the economy. In this context according to Wirth, “sociology has essentially been a left-over science.” The study of capitalism as a dominant economic system must comprise two main parts. At first, the study of individual middle-range phenomenon is required to be made. Certainly, by far this consists of the most significant task of an economic sociology of capitalism which cannot be easily replaced by the macro-level studies of capitalism. One of these is that, this kind of studies summarizes the fundamental links between distinct parts of the economy as how the process of economics hangs together. They also depict how the study of different parts of economy must be related to each-other- something which has previously been absent in the economic sociology, but which is very essential for its attempt so as to create more systematic approach. In analyzing every part of the system of capitalism, it is also significant to be clear regarding what drives the system completely. Eventually, there is complete logic of capitalism is present as a dominance economic system, of which the individual actors are not aware of. By the logic of unintentional consequences, it produces individual health as well as social wealth.

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2.3. FACTORS INFLUENCING THE BASIC MODEL OF CAPITALISM (FIGURE 2.2)

Figure 2.2: Capitalism. Source: https://bobjessop.wordpress.com/2014/03/28/rethinking-the-diversityand-varieties-of-capitalism-on-variegated-capitalism-in-the-world-market/

2.3.1. The Role of Politics (Including the State) The function of politics, as well as the state in the economy, signifies a complicated topic. Generally, the state in the economy of capitalism has very less power over the economy as compared to the state in a very redistributary one. In the latter case, the state used to control the major economic resources and decides what kind of rules are to be followed. On the other hand, in a capitalist economy, only the state has the potential to set the rules, not to decide the utilization of resources for the aim of production. The last case has been identified by several economists who are actually more complicated as it appears at first. The capitalist State has to resolve the basic political dilemma of an economy, specifically which the state has to be strong enough so as to implement private poverty rights, but still, abstain

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from utilizing its power to confiscate private property. When it is about production, the capitalist State has negligible control over the utilization of economic resources. It does not necessarily mean that it is deprived of economic resources. None of the states can survive being deprived of the economic resources on its own, specifically the modern capitalist State with all its functions to bring about: defense, health care, education, regulation, welfare, and so on. In principle, the capitalist state finances its expenses by grabbing that part which has been produced, either from what would have gone to the profit or consumption. To tap one of the sources instead of another signifies a significant political decision. The sociological study of generation, as well as spending resources of the state, belongs to the most avoided field of study, which is known as fiscal sociology.

2.3.2. The Role of Culture in the Economy For sociologists as well as economists, culture is really a tough topic. In context of sociology, the fundamental concept of the culture draws mainly on the Weber and mainly covers the following two sectors that are not identical but overlapping: valuation and sense-making. To put it in more tangible language, the cultural segment of an economic activity has to do with the fact that: •

Anything economic is classically considered as being positive or negative. • Economic phenomenon such as human phenomenon must be observed through the eyes of human so as to make sense and become a recognizable phenomenon at the first place. It can be further added that, whether the trade money is regarded as something positive or something negative in the society, is a question which consists of culture. Nearly, in every culture, this kind of activity has been deprecated and been linked with different groups of minorities, such as the Indians in Asia and the Jews in medieval Europe. Recently, several attempts have been made so as to put some major insights from the rational psychology into the notion of culture. It is not the correct time to tell, to what degree this will succeed. However, what remains true is the prosperity of the Weberian approach, connecting culture with values and sense-making or the making of economic phenomenon by their significance structures.

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2.4. CRYPTOCURRENCIES AND THE ECONOMICS OF MONEY 2.4.1. Economics of Money Anthropologists estimate that, in the early human societies without money, goods were used to be provided for the assurance to return the favor in the future. Money can be regarded as a record-keeping device in this context. Instead of people taking around copies of an awkward ledger that records the complete history of the transfers, money transforms the tangle of IOUs into a simple token. In the laboratory experiments along with the undergraduates as guinea pigs, several researchers found out that the exchange of tokens (intrinsically worthless) does quite good at producing cooperative behavior as compared to that when the students are left to their own devices so as to possess a tally of who owes what to whom. The concept of everyone taking around a paper-based ledger of every past transaction is impractical. But the major question is that, whether computing and technology can come for the rescue and accomplish the idea of a shared ledger of almost every past transfer. The selling point for cryptocurrencies has been that such decentralized agreement may be viable in the digital age. However, it turns out that the hunt for decentralized agreement clashes with the economics of money. The incentives are the key. Based on the selfinterest, book-keepers introduce various constraints and cut down various concerns for the subsequent arrangement so as to serve as a monetary system.

2.4.2. Scalability of Money Money has a great value as it is utilized as money. Devoid of users, money is only a token without any worth, whether it is a digital token or a piece of paper with a face. In particular, the token is not a kind of promise by anyone, but the trust in money evolves as an asset of the community completely. More others have interest in the exchange of money; more a person is willing to accept it. In terms of a game theory, as an institution, money is a game of coordination. This brings the question of scalability. Alternatively, cryptocurrencies have the ability as well as flexibility so as to serve being a well-functioning system of payment. Along with money, a virtuous circle is present where major use attracts more users.

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This virtuous circle is instrumental in emphasizing and entrenching the utilization of the specific version of the money as a kind of invention in the society. The saying is “the more, the merrier.” The instruments of payment themselves such as coins, notes, and bank deposits- do not become very much expensive to utilize when a greater number of people use them. In the case of cryptocurrencies, the case is extremely opposite. Sustaining incentives for self-interested bookkeepers requires the small capacity so as to maintain user fees. Congestion is an important feature of the system with which motto is turned on its head. Instead, we should say “the more, the sorrier.” Just assume a road. If the road is quite narrow, drivers fear congestion and stay away. But congestion is a significant part in the functioning of a system, as the road has to be sustained by collection of a toll. If the issue is capacity of road then why not build broad road? Increasing the capacity of system appears as the evident solution. A lot of capacity drives the miners away as users do not pay required fees to make it worth for the miners to upgrade the ledger. Finding the apt capacity is similar to balancing on a knife-edge. If the capacity is very small, there is a great congestion. If the capacity is too large, the infrastructure falls apart. This is not how the money is expected to work. This is one of the ways that cryptocurrencies fail the economic test for money.

2.5. CRYPTOCURRENCY: THREAT TO THE ECONOMY OR NEW POSSIBILITIES The Fintech revolution and cryptocurrency were earlier independent bodies that were far from the reach of any national bodies of regulation; however, it is observed that in the recent times these have been affected by the effect of different solutions, laws, forecasts, and the actions of government regulators. There is lot of debate that is under progress regarding the advantage’s disadvantages and risks of the cryptocurrencies in the recent times to understand the scope and potential of cryptocurrency being the future currency in the business world. The different advantages, scope, and potential of the cryptocurrency has been discussed in this section.

2.5.1. The Transformation of the Global Financial System Bitcoin is known to be the first form of currency that is decentralized, and

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it is made in 2009. Bitcoin is regarded as one of the most important forms of cryptocurrency across the world. The Bitcoin is known to have a market capitalization of $64 billion. Bitcoin is known to have a record growth in the fourth quarter of 2017, and during this quarter it is known to have reached nearly $237.62 million. Simultaneously, during this time it was recorded that the total market capitalization of all the crypto assets is known to have reached a huge number which was approximately $823.30 billion. The sudden change and a steep progress in the value of the crypto coins and tokens have failed to gain the attention of the world and different regulatory organizations. A number of these organizations are known to have taken a “defensive position” regarding the positive characteristics of the digital money and refrained from completely agreeing with the different positive characteristics related to digital money. However, it was found that different people belonging to several positions in the government, financial analysts and other people who are part of the financial sector are known to have either remained neutral or they might have remained to stay positive on different issues related to cryptocurrency. There are some people such as Martin Muehleisen, the director of the IMF department of strategy states that the presence of proper political measures is known to reduce the financial difficulties that are present in relation to the effects that may occur because of the destabilization of this technology. Martin states assertively that there is need to imbibe novel technologies in relation to the cryptocurrency that must be adapted by FinTech solutions so that there is need to customize these technologies according to the needs of the customer. These strategies that are adapted and customized in relation to the cryptocurrency are known to have a number of long-term benefits for the future.

2.5.2. Advantages of Implementing Digital Currencies •

•

The cryptocurrencies are known to have a lot of advantages when compared to the regular currencies because they do not have any centralized experts or professional to regulate cryptocurrency. Cryptocurrency is known to be managed by a number of people that includes several participants that are present across the network.

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•

•

•

•

•

•

•

•

The cryptocurrencies do not have any middlemen such as banks or any other official institutes that are involved in creation, processing, and transfer of any cryptocurrency. Cryptocurrencies are a way to establish economic integration across the world, and it plays an important role in global economy by lessening the costs involved in local and international transactions related to finances. The peer to peer transactions related to finances are known to become faster as there are no charges or very limited charges that are involved will make the cryptocurrency available to everyone. On the 27th of July 2018, there was a lot of focus and attention in the internet and television regarding the multimilliondollar transactions that were made in the Bitcoins which was approximately $300 million dollars. These multimillion-dollar transactions are known to have taken place for a very limited amount of fees which was approximately $0.04 United States Dollars. This multimillion transaction happened for a very little amount of transaction fees in an extremely faster pace (approximately few minutes). Cryptocurrency is the digital currency which is known to be extremely safe and secure as it uses blockchain technology and cryptography to create a safe and confidential environment. There is scope to perform transfers, exchanges, and several other operations only when the accord reaches the different nodes that are present in the network. Cryptocurrencies have enormous potential for development, and they may take over several currencies that are present in the market. There were a number of investors who made several investments in the second half of 2017 which led to the rise and increase in the value of cryptocurrency. For instance, the value of Bitcoin raised from $371 in January 2016 to more than $13,000 by the end of December 2017. In addition, the market capitalization of BTC increased from $0.04 billion in first quarter (Q1) 2012 to over $230 billion in first quarter (Q4) in 2017. Though there is general drop in the value of Bitcoin by the January 2019 when compared to the July 2018, still the value of the Bitcoin is known to be around $3,300–$3,700 per Bitcoin.

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• •

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This indicates a significant growth in the value of Bitcoin ever since 2017. The rate of growth is known to be nearly five factors ever since January 2017. The cryptocurrencies are generally open source which is a major advantage as being open source would make their source code be available to everyone across the globe. The Bitcoin and cryptocurrencies have a scope and possibility to spread across the globe. There is a general trend in the increased use of cryptocurrencies across several businesses, and there is an increase in the number of businesses that are showing a “cryptocurrencies accepted here” sign every month by month.

2.5.3. A Wall of Restrictions There are several regulators of cryptocurrency who are present at a global level, and they are known to have a skeptical and vague idea and comprehension regarding cryptocurrency. These regulators generally have a mixed idea and thought regarding the cryptocurrency in which there are a section of people who visualize cryptocurrency as something that has a lot of potential whereas there is a section of people who visualize cryptocurrency as just another “latest bubble.” The scenario of several ICOs is known to be the same across all the countries, and it is known to be illegal in some countries across the globe such as China as of September 2017. There are some countries that regulate and approve the ICO and some of these countries that approve of the ICO are Germany, United Arab Emirates, Israel, Singapore, and several other countries. Though the usage of cryptocurrency is allowed in some countries, the governments of these countries are working hard to take necessary steps in regulating the utilization of cryptocurrencies and ICO’s as it is the responsibility of the governments to protect their citizens from the potential risks that are allied to the utilization of Cryptocurrency and ICO. A number of regulatory bodies and governments from different parts of the world are trying to fight the anonymity of the cryptocurrency with the help of a number of rules and regulations. For instance, the Japanese regulator FSA started regulating the cryptocurrencies by passing a law

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which states that all the crypto exchanges would be delisted based on the presence of several “anonymous coins and tokens.” There is a document related to this that has been passed, approved, and that has come into effect from the 18th of June 2018. The major reason for regulation of the cryptocurrency is the fact that the FSA representatives have analyzed and predicted that the presence of several cryptocurrencies is known to have posed a threat to the economy of the country and there is a possibility of economic instability that may arise in a country. However, there is need for further stringent monitoring by authorities that is needed to regulate the use of several cryptocurrencies and digital currencies so that there would be limited misuse of these currencies.

2.6. EFFECT OF CRYPTOCURRENCY ON GLOBAL ECONOMY The arrival of cryptocurrencies is known to have changed the outlook of people regarding money. There were only computer scientists who were able to predict the arrival of digital money, and they did not have need for any intermediary or middle person to control the usage of this money. The digital currency was generally created by some digital rebels and such thoughts related to digital currency and the evolution in the thoughts related to cryptocurrency is known to have given birth to the Bitcoin in 2009. The origin of Bitcoin gave birth to different types of cryptocurrencies that are now playing a significant role in controlling the global economy. There were a number of attempts that were made to make a proper cryptocurrency before the birth of Bitcoin. However, a majority of these attempts to make a perfect cryptocurrency is known to have failed miserably, and the major reason for all these failed attempts was because of the presence of the double spending problem in the creation of cryptocurrencies. The presence of so many failed attempts and drawbacks is the creation of cryptocurrencies refrained many people from developing a proper cryptocurrency. However, Bitcoin is a huge revolution in the world of cryptocurrencies because it is known to have overcome the problem of double spending and it is known to have reduced the problem of double spending with the concept

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of mining and the blockchain. There are two concepts that are known to have reduced the problem of double spending which led to the success of the Bitcoins, and they are as follows: • • 1.

Mining; and Block Chain. Mining: It is known to be an extremely popular concept which is used in the process of confirmation of transaction. Mining is a process that is known to make a greater number of Bitcoins and the people who are miners are known to be network users. 2. Block Chain: It is known to be an important concept that is known to have reduced the double spending in cryptocurrencies and led to the success of Bitcoin. Blockchain is popularly known to be a decentralized ledger. Blockchain is known to be a completely safe place where the miners might have stored a lot of information related to their transactions. Blockchain is known to be an extremely important and it is used in Bitcoins to store the information related to miners and reduce the double expenditure. However, blockchain is known to be a very complex phenomenon which is used in a number of fields (Figure 2.3).

Figure 2.3: Blockchain technology.

Source: https://thebulletin.org/2017/10/blockchain-a-new-aid-to-nuclearexport-controls/

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This urge to try and use novel payment methods is leading to a number of innovations in the financial sector and continuous change, innovation led to the arrival of cryptocurrencies which are easy to use, quick, and do not have a regulatory body. Cryptocurrencies are growing fast, and a number of companies are adapting cryptocurrencies to do financial transactions because of the ease of use, and the cryptocurrencies may soon pose a threat to the dollar of United States. A number of countries have applied the use of different types of cryptocurrencies, for instance, in Russia people can buy flight tickets, pay the cabs and do a number of other services with different types of cryptocurrencies such as Bitcoin, Litecoin, and other Altcoins. Cryptocurrencies are known to increase rapidly, and in future, there could be a number of cryptocurrencies that may occur. The information regarding several types of cryptocurrencies such as Bitcoin, Litecoin, Ethereum, and other types of cryptocurrencies is increasing, and this type of knowledge is spreading across the world. Cryptocurrencies come with different functionalities that are easy to use and have a number of features, tools that are essential in simplifying the life of the several people. Cryptocurrency is known to be a new torchbearer for change, and there is huge scope for this type of currency to change the way the different things work. There are a number of thoughts and varying perceptions regarding the arrival of cryptocurrency, and there are some people who are welcoming the change, whereas, there are a number of other people who are skeptical about the possibilities of the cryptocurrency. However, it is important to note that change is not always bad and it is extremely important for people to welcome change to see drastic differences in the way things function. Cryptocurrencies have a huge impact on the economy, and they are known to change the lives of the people and regulate the process by which different industries and businesses develop. Cryptocurrency is gradually changing over a period of time ever since it originated and a number of changes, evolution in the development of cryptocurrency results in the current status of cryptocurrency. The development and evolution of cryptocurrency has not been focused upon by a larger section of people whereas it is important to understand that cryptocurrency is gradually growing and expanding without any stop over

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a period of time. There are a lot of concepts and technologies that are part of cryptocurrency as a result of which there are a number of people using cryptocurrency, and there is a lot of scope for cryptocurrency to become one of the most important elements of the entire business process. There are a number of ways in which the cryptocurrencies are known to have an impact on the global economy, and the impact of the cryptocurrency on global economy is categorized into the following types: • • • • • • • •

Less barriers to entry; Cryptocurrency challenging the Dollar of United States; There is no role of the middlemen; The new generation of crowdfunding; The arrival of exchange-traded funds (ETF); Novel methods of payment; Replacing cash; A different alternative.

2.6.1. Less Barriers to Entry The important element of the cryptocurrency is that there are no barriers that are present with respect to the cryptocurrency and it provides access to everyone in the network to use the cryptocurrency. There are absolutely no barriers or very limited barriers that are present with respect to investing or trading with the help of cryptocurrency. The cryptocurrency provides access and enables a greater number of people from the financial world to use this digital currency, and the presence of a greater number of people or involvement from people belonging to different sectors would promote the utilization of several tools and software to be used in making cryptocurrency a better tool to access. The example of one among the several tools that are used in the cryptocurrency for the ease of access is the Bitcoin Code System which is a cryptocurrency trading system; this tool is known to help in giving useful results and returns for the investments that are made in the Bitcoins and other cryptocurrency. This tool is very helpful in assisting people with all the information related to Bitcoins.

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2.6.2. Cryptocurrency Challenging the Dollar of the United States United States Dollar is known to be the principal element that is governing the entire global economy. The dollar of the United States is the reserve currency for the different economies across the world. The arrival of the cryptocurrencies, especially the Bitcoin is known to pose a challenge or threat to the dollar of the United States. The cryptocurrencies are being used as the new standards, and they are having high chances of being the standard currency in the world market. There is a larger scope for these cryptocurrencies to be used widely as standard currency in the world market and the dollar of United States may lose the war of being the standard currency or widely used currency in the world market. There have been several attempts that were made in the past to de-dollarize the global economy, and there were several countries and governments that tried to bring an end to the supremacy of the Dollar of United States but in vain. However, a number of these attempts did not succeed until the origin of Bitcoin. Bitcoin and the arrival of cryptocurrencies succeeded partially by posing a right challenge to the reign of the Dollar of the United States. The cryptocurrencies are known to have a huge influence on the dollar and may have a significant role in the process of de-dollarization which is known to have a huge impact on the global economy.

2.6.3. Absence of the Role of Middlemen The main reason why Bitcoin is extremely attractive to a number of people is because unlike the other sources of money cryptocurrency does not have any middlemen such as banks or another official institutes. The absence of a regulatory authority and the source code being open facilitates the use of cryptocurrency widely. A number of people might use cryptocurrency in the place of the dollar of the United States. United States dollar has a number of middlemen such as the government, banks, and other institutes that are known to regulate a dollar and the transfer of a dollar would involve a lot of middlemen and might involve a lot of money. Whereas, in the use of Bitcoin is simpler and easier because there are neither middlemen nor transaction fees which makes the transactions faster

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and facilitates the use of Bitcoin. The only middlemen in the economy of Bitcoin are the network users.

2.6.4. New Generation of Crowdfunding Crowdfunding indicates a very important and interesting method of collecting money. The concept of crowd money is known to be extremely popular among different entrepreneurs and other people who are interested in opening a small venture or novel business setup. Crowdfunding facilitates business people to enhance their businesses. The arrival of cryptocurrencies and blockchain technologies is known to have simplified the process of crowdfunding, and the ICOs are known to have played an important role in the Crowdfunding process by being the leading tools in the process of crowdfunding ever since 2017. ICOs are known to lead the process of Crowdfunding, and it is facilitating business people and entrepreneurs in opening new ventures and projects by minimizing the need of any sponsors or loans for these people to start a new business (Figure 2.4).

Figure 2.4: Crown funding.

Source: https://justentrepreneurs.co.uk/blog/crowdfunding-is-it-the-remedy-to-your-funding-problems

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2.6.5. Exchange Traded Funds (ETF) Exchange traded fund is often called as ETF and being able to do ETF is known to be the major objective of several cryptocurrencies and majorly for Bitcoin. There have been several attempts to create a Bitcoin ETF. All of them have been denied by the U.S. Securities and Exchange Commission (SEC). There are a number of experts who state that the use of the Exchange Traded Fund in the Bitcoin is known to create some regulation in the pricing of Bitcoin. There are several experts who state that there are a number of professionals and analysts who state that Bitcoin ETFs will be a new era for newbie and inexperienced investors (Figure 2.5).

Figure 2.5: Exchange traded funds (ETF).

Source: https://www.hnfc.co.uk/finance-blog/why-investing-money-in-exchange-traded-funds-etfs

2.6.6. Novel Payment Methods The current generation of people has been exposed to several novel methods of payment ranging from the use of cash to credit and debit cards to different types of wallets. The previous generation was never exposed to any novel modes of payment other than cash whereas the present generation is largely dependent on credit and debit cards and are exploring a range of new payment methods that are easy and quick.

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2.6.7. Replacing Cash One of the major spin-offs with the origin and utilization of the cryptocurrency is that there is a chance that cryptocurrency may completely replace the possibility of utilization of cash. There is a chance of cash and paper currency to totally disappear when a number of people start utilizing the cryptocurrency. This leads to a scenario where cryptocurrency would replace the cash in the market and leads to a completely cashless society. This indicates the movement of people from the use of cash to the utilization of debit cards to the utilization of cryptocurrency, and this indicates the shift in the attitude of the people to use easier and convenient modes of payment.

2.6.8. A Different Alternative In today’s, scenario cryptocurrency is known to be just an alternative to other payment methods that are available. This provides an alternative mode of payment to several people and allows people across the globe to choose a mode of payment by pondering the advantages and disadvantages of all the modes of payment. The success of cryptocurrency would be known in the future; however, these types of digital currencies may revolutionize the financial transactions in several banks and bring about enormous changes in the financial systems.

2.7. ECONOMIC CONSEQUENCES OF CRYPTOCURRENCIES AND ASSOCIATED DECENTRALIZED SYSTEMS In the past few months, the growth of Bitcoin had caused cryptocurrencies to gain more power all around the world. In spite of that, majority of them are merely affiliated with the decentralized system of payment. Remarkably enough, the power hidden behind these kinds of sophisticated systems as well as networks has not been inspected yet to the level it deserves. Hence, the aim of this section is to find what kind of economic consequences this cutting edge technology may bring to the society in context of the way our government organization functions along with the possible inferences for the economic policy (Figure 2.6).

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Figure 2.6: Cryptocurrencies.

Source: https://www.ii.co.uk/analysis-commentary/cryptocurrency-and-Bitcoin-themes-watch-2019-ii507532 Recently, cryptocurrencies have been a key subject of various studies as well as analyses in terms of their economic properties. The analyses of various researchers are generally concentrated on quite narrow range of the cryptocurrencies function and lack the wider context. The aim of studying cryptocurrencies and their effect on the global economy is to depict the evolution of crypto, usually referred to as disruptive. Technology develops a link between the sector of economics and information technology as it allows altering the approach some of institutions work. For a great understanding of cryptocurrencies, it is mandatory to be aware of few facts that are associated with the crypto technology. Crypto technologies are defined as those technologies that are based on cryptography. It has really a long tradition in the human history. Although, current mathematical cryptography has been developed over the past few decades. The public key cryptography was first introduced in the year of 1976. It is a class of software systems that utilize cryptography. In general, these kinds of software systems can easily execute a system to transfer simulated goods and simultaneously they can also execute complex agreements between different parties. There are numerous types of simulated goods, like pieces of software, online documents, songs, etc. Though, there are some other kinds of simulated goods also that may not be that certain like an approval,

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ownership of anything, verification or notarization of almost anything or a unit of currency. There are three key issues related to the field of crypto technologies. First of all, it is forging or counterfeiting. In other words, promise of the parties that the original simulated goods were transmitted, not a copy. Second is the trust. It means that the trust of the opposite party is not needed to transfer simulated goods. The reason behind this is that the transfers are verified. Another major issue addressed by this technology is the central authority. It means it enables the absence of such authorities so as to process the transactions and sustain the ledger; there is no involvement of middleman. Crypto technologies are underpinned by two key ideas that are Public Key Cryptography and the Blockchain. Public key cryptography is a refined concept of math that further allows an individual to encode a simulated good which can only be decoded by the projected recipient. The sender cannot even decode it, once the good is encoded. In this notion, there are two types of numbers deployed: a public key and a private key. The second concept is of Blockchain that can be described as a special type of ledger which keeps the track of every evidence who holds that. This is very hard to be modified cunningly. Pseudo-anonymity is one of the most significant properties of the blockchain.

2.8. OUTSTANDING ISSUES AROUND THE CRYPTOCURRENCY MARKET With the cryptocurrencies present in the initial innings, there are various issues related to its development. It is interesting to anticipate the political as well as philosophical implications of cryptocurrencies. Inherently, cryptocurrencies are political as they challenge the custom social contract which societies operate under. As per this theory, members of the society indirectly agree to abandon their few freedoms to the government for the exchange of stability, order, and security of their rights. By developing a decentralized wealth, cryptocurrencies are governed by the code alone (Figure 2.7).

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Figure 2.7: Some of the major issues around the market of cryptocurrency.

Then, it is no wonder that the regulation, accounting treatment, and privacy-related issues in cryptocurrencies have yet to be determined completely. Following sections will provide brief description of the tangible features of the development of cryptocurrency.

2.8.1. Accounting Treatment of Cryptocurrencies Under the present guidelines of accounting, cryptocurrencies are not cash or equivalent to cash as they do not have the liquidity of the cash as well as the stable value of the equivalent of cash. Although, the accounting treatment of cryptocurrencies is not certain as there has been no official guidance on the problem from the American Institute of CPAs (AICPA) or International Finance Reporting Standards (IFRS).

2.8.2. 2014 Internal Revenue Service Ruling In the United States, IRS Revenue Ruling 2014–2021 stated that the holders of cryptocurrencies must account for them being a personal property, with the losses or gains on the sales or purchases. The value of the holding of cryptocurrency on the balance sheet would be at fair market value at the point of receipt. Hence, with the gradual increase in the price, sales of cryptocurrencies lead to huge gains at the time of sale. The ruling left several questions

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unanswered. For instance, it is quite unclear that whether the exchange of one cryptocurrency for another is entitled for the tax deferment under something known as the “like-kind exchange” rules. These rules eliminate few assets of the investment, but explicitly do not exclude cryptocurrencies, so that their application is not clear.

2.8.3. International Tax Treatment of Cryptocurrencies Outside the United States, accounting treatment of the cryptocurrencies differs. In the European Union, a decision of the European Court of Justice rules that cryptocurrencies must be treated as the government-backed currencies and that the holders should not be taxed on sales or purchases. In countries like the UK and Germany, cryptocurrencies are regarded as the private money, and it is not subjected to tax beside of the commercial use. In the same way, in Japan cryptocurrencies are classified as a means of settlement of the transactions. Therefore, these are exempted from the tax consumption of Japan. Earlier, the sales of cryptocurrencies were subject to around 8% tax consumption.

2.9. CORPORATE DEBT, CRYPTOCURRENCIES & THE NEXT FINANCIAL CRISIS Though the last financial crises were led by the loan debt, the next financial crisis will probably be led by the corporate debt, and it is not clear if the central banks will have enough tools to resolve the next crisis. As the world rushes into the first quarter of the year 2019, the government of the United States continues on its extended shutdown in the history and the season of corporate earnings is in complete swing. One of the instant consequences of the Lehman Brothers’ bankruptcy was that the market of corporate paper dried up which was dynamically traded between the banks. Several companies found themselves not able to pay to suppliers, to make the payroll, to pay for the transport, in short all of the key processes of a business had ground to a stop. Financial crisis really taught the companies effective lessons. As the central banks lowered the rates of interest to around zero or at times negative also, companies found that the commercial banks were not consistent counterparties anymore for the corporate paper. The search for the yield attained steam as the investors took the benefit of a huge amount

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of liquidity flooding into the market. This was much more prevalent in the market of corporate bond with the companies providing all measures of the high coupon rate debt instrument and in few cases, the perpetual bonds that had no dates of maturity. If the investors had done their complete research, they would know that the top ten largest organizations existing in the United States today never existed fifty years ago. This made the value of these perpetual bonds uncertain at the best. Still, investors who are hungry for the yield sloshed them up- similar to kicking of bucket down the road, as other investors would pick these perpetual ideally. The consequence has always been a worrying legacy of the corporate debt as well as share-buy packs along with the record cycle of acquisitions and mergers. However, the trouble in the quality of the debt increased. The yieldstarved investors looking for the fixed returns above the level of merger provided by the cash as well as government bonds were very happy to soak up every manner of the corporate debt, with Triple B grade debt having developed from US $750 billion at the end of the year 2007 to an eyewatering US $2.7 trillion in the United States alone. There are substantial headwinds facing that corporate debt. With the threat of an approaching U.S.–China trade war, there is an ambiguous Brexit condition in Europe, and very slow growth in China, along with the increasing geopolitical tensions from the Middle East to Taiwan. There are countless reasons to be concerned. A hawkish Fed has raised the expectations of increasing rates of interest and weaker the reports of earnings in the near future (Apple may have been the only crack in the dam). A huge chunk of the Triple B-rated corporate paper is at greater heading risk into the junk or high yield market. Already, the Triple N market has shed around 3% since past one year. As per few analysts, this is just a beginning. As per the Institute of International Finance (IFF), the Triple B corporate debt justifies almost 42% of the overall corporate debt of the United States. This trend reflects that how investors have gradually gone down on the ladder of ratings in search of yield, growing their exposure of risk for more basic points of yield in few cases, intensely skewing the ratios of normal risk-reward and throwing the actuarial models out of the window. According to the IIF, “This suggests that a rapid tightening in financial conditions or a growth shock would severely stress weaker issuers.”

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Over the brain trust of J.P. Morgan, the team of flows and liquidity has noted that the total median debt to EBITDA (Earnings before Interest Taxes Depreciation Amortization) for the United States and the European High grade, as well as high yield corporate debt, have steadily increased since the financial crisis. This leverage metric stands much higher at the peaks of the past two cycles. “From a net debt to EBITDA ratio point of view, more than half of Triple B companies in the U.S. and Europe look more like high yield than high grade.” Especially, the corporate paper of the lowest investment grade is being observed by some of the great buyers as well as sellers of that same corporate paper as progressively more junk grade. The concerns regarding the issue that the corporate debt may run out of favor soon is intensified by the shrinking balance sheet of Fed. In an effort to balance the bonds, more bonds are being issued by the Fed regularly, sustained in the major part by the expected US $1 trillion budget scarcity and which may increase the rotation between government and corporate debt. With the vision of growing geopolitical uncertainty as well as increasing the rates of interests, there are several reasons for the government debt of the United States to come back in the play again. One of the great managers of the private credit funds, KKR has cautioned that corporate credit is going to be a major story in coming years, warning against affording highly indebted organizations. Companies had borrowed so as to fund the growth of research and development sector that would be one of the major things. In spite of that, companies have also observed it flexible to utilize the markets of debt as their personal ATMs so as to fund the non-productive shares that do very less as compared to increasing the value of the stock of the senior executives. The remuneration of these senior executives is tied up to the price of stock. In the period of financial crisis, the closing of the credit markets as a result of permitting Lehman Brothers to fail has also allowed the central banks to identify the logjams so quickly, soaking up the harmful features as well as breathing life back into the market of credits in quite short order. As the key players in the last financial crisis were quite big nodes of the universal financial system, reinforcing them up at the least sufficient stage will allow the financial market to take major steps that are very much

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required for attaining normalcy. Along with the Triple B grade corporate paper, the silver bullets are not that easy to fire as in a decentralized collapse of the corporate credit, which are the companies that are essential for the purpose of rescue and which are not? Then how could the central banks justify saving legions of Triple B while permitting others to flop deprived of the favoritism as well as arbitrariness allegations being leveled against the central bankers? Till the letdown of Lehman Brothers, Henry Paulson, the U.S. Treasury Secretary was very much cautious to direct away from the moral threat of a government-backed bailout of the private organizations, but along with that the moral threat would be willing to permit the central bankers to utilize public money to fund the scores of reckless as well as self-serving companies once again. In contradiction of the backdrop of the last financial crisis and unsatisfied with the utilization of taxpayer money to bail out the private organizations, the Bitcoin whitepaper was developed. With the increasing possibility that the next financial crisis will arise from the corporate debt impending over the horizon, cryptocurrencies will rise again to the forefront as the investors look to alleviate against the notions of the attack of questionable corporate debt. In the last financial crisis, there was no concept of Bitcoin. In fact, it almost took around ten years for Bitcoin and various other cryptocurrencies to come into existence and grab the universal headlines as well as consciousness.

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Bank for International Settlements, (2015). Committee on Payments and Market Infrastructure [eBook] (p. 24). Retrieved from: https:// www.bis.org/cpmi/publ/d137.pdf (Accessed on 7 May 2019). Cryptocurrency: Threat to the Economy or New Possibilities, (2019). Retrieved from: https://cryptodigestnews.com/cryptocurrency-threatto-the-economy-or-new-possibilities-bc578ed6876d (Accessed on 7 May 2019). How Cryptocurrency is Disrupting the Global Economy & the Financial System, (2018). Retrieved from: https://www.bmmagazine.co.uk/ business/how-cryptocurrency-is-disrupting-the-global-economy-thefinancial-system/ (Accessed on 7 May 2019). How Does Cryptocurrency Affect the Global Economy? – Finance Train. Retrieved from: https://financetrain.com/how-does-cryptocurrencyaffect-the-global-economy/ (Accessed on 7 May 2019). Kharpal, A., (2018). How the World is Regulating the $220 Billion Cryptocurrency Market. Retrieved from: https://www.cnbc. com/2018/08/09/cryptocurrencies--regulating-the-new--economy. html (Accessed on 7 May 2019). Mazer, J., (2019). Demystifying Cryptocurrencies, Blockchain, and ICOs. Retrieved from: https://www.toptal.com/finance/marketresearch-analysts/cryptocurrency-market (Accessed on 7 May 2019). Song, S. H., (2018). Cryptocurrencies and the Economics of Money [eBook] (p. 5). Bank for International Settlements. Retrieved from: https://www.bis.org/speeches/sp180624b.pdf (Accessed on 7 May 2019). Stancel, D., (2015). Economic Consequences of Cryptocurrencies and Associated Decentralized Systems. Retrieved from: https://www. researchgate.net/publication/280794376_Economic_Consequences_ of_Cryptocurrencies_and_Associated_Decentralized_Systems (Accessed on 7 May 2019). Tan, P., (2019). Corporate Debt, Cryptocurrencies & the Next Financial Crisis. Retrieved from: https://medium.com/altcoinmagazine/corporate-debt-cryptocurrencies-the-next-financial-crisisebf108e66022 (Accessed on 7 May 2019).

Chapter 3

Bitcoins: The New Age Currency

CONTENTS 3.1. Introduction ...................................................................................... 70 3.2. What Is Bitcoin? ................................................................................ 71 3.3. Why Bitcoin Is ‘Good Money’ For The Global Digital Era .................. 73 3.4. Bitcoin’s Transactional Properties ...................................................... 76 3.5. Bitcoin: A Currency of Digital Era ..................................................... 77 3.6. Bitcoin Business Opportunities ......................................................... 79 3.7. What Makes Bitcoin Valuable? .......................................................... 82 3.8. Blockchain Technology Could Change The World Much Like The Internet Did ...................................................................... 85 3.9. Mining Of Bitcoin ............................................................................. 88 3.10. The Bitcoin Network (Figure 3.7)..................................................... 90 3.11. Conclusion ..................................................................................... 92 Reference ................................................................................................ 93

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The chapter starts by explaining the need for the introduction of Bitcoin. It explains what actually Bitcoin is and how it is operated in the market. It also explains why Bitcoin is considered as good money for the global digital era. It also discusses the transactional properties of the Bitcoin. It further discusses why there is increase in popularity of Bitcoin among people. It also highlights the functioning of Bitcoin and compared the present value of Bitcoin with past trends. It also explains how one can use Bitcoin in getting business opportunities. It also discusses the factors that make the Bitcoin valuable. It also explains how the innovation in a blockchain technology helps Bitcoin in doubling its value within a year and also discusses the current uses of Bitcoin technology. It further discusses the process of mining of Bitcoin and explains the Bitcoin network.

3.1. INTRODUCTION The primary purpose to create the Bitcoin is to use it for different reasons, and the importance of Bitcoin is increasing day by day as people accepting it as a mode of payment. It is generally believed that people do not have faith in public or private bank to govern their money. One of the central components of the Bitcoin architecture is mining. The miners engage in verifying each transaction and compete with each other to get rewards. In order to eligible for the reward, a miner is required to perform the math calculation before it is done by anyone else in the network. Back in the days, a miner would be any geek with a computer, willing to trade electricity for Bitcoins. Today, a miner is usually a huge warehouse full of very advanced computers, constantly running to solve the math problems as fast as possible. With the passage of time, the process to mine Bitcoin become more complicated as it requires more capital to operate profitable mining operations. Most of the mining operations are performed in a country in which the prices of electricity are cheap. Therefore, it is generally seen that most of the mining are done in China as miners there have access to cheap electricity. In Satoshi Nakamoto’s white paper, one of the main ideas was that every CPU was going to be an equally important part of the network. The primary objective of this is to ensure that Bitcoin will always remain shared and independent currency. The makers of the Bitcoin currency don’t want any

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fat cat to drive our monetary architecture. The role of miners in the process of mining is continuously increasing as the process of mining becomes complicated. In order to make the Bitcoin ecosystem free from the influence of miners, most of the people are of the view that the best possible way to make this possible is to change the Bitcoin protocol in such a way that more people can have access to Bitcoin mining. The excitement about use of Bitcoin and cryptocurrencies is continuously increasing among public. The experts who are familiar with cryptocurrencies are of the view that the increase in the use of Bitcoin will results in altering payments, functioning in the economics, and even politics around the world. However, some others claimed that Bitcoins are more vulnerable to fraud the bubble of Bitcoin will burst one day. In order to understand what is special about Bitcoin, it is important to know how it works at a technical level. Bitcoin truly is a new technology, and it can be explained through simple analogies to past technologies.

3.2. WHAT IS BITCOIN? Bitcoin is sum of advanced technologies and concepts that form the basis of a digital money ecosystem. Units of currency that is generally known by the name Bitcoins are used to store and transmit value among participants in the Bitcoin network. The users of Bitcoin communicate with each other primarily via the Internet, although some other transport network can also be used in the transactions. The Bitcoin protocol stack, available as open source software, can be run on a different types of available computing devices, which range from laptops to smartphones, thus allow the Bitcoin users easy accessibility and convenience to use it anywhere and anytime (Figure 3.1).

Figure 3.1: Logo of Bitcoin.

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S o u rc e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 7 / 0 5 / 2 7 / 11 / 1 6 / B i t coin-2348236_960_720.jpg The Bitcoin can be used in exchange of physical currencies as the users of the Bitcoin send the Bitcoin over the network just like they transfer money to purchase goods and services or to donate money to charitable organization or to send money to anyone living in other country. The basic functioning of Bitcoin technology involves using encryption and digital signatures to make sure that the transaction of Bitcoin is safe and secure. Bitcoin has a standard and specified rate which is same across the world, so it is easy with Bitcoin to sold, purchased, and exchanged for other currencies at specialized currency exchanges. Therefore, the Bitcoin is perfect form of money in a digital era as it is fast, secure, and borderless. Unlike traditional currencies, Bitcoins are entirely virtual. There is no physical presence of Bitcoins as it is not issued in form of coins or even digital coins per se. The coins are implied in transactions which transfer value from sender to recipient. There is specific key of each coin, and every owner of the Bitcoin has its own private key, which is the proof to know the genuine owner of the Bitcoin and used by the owner to spend it or to transfer it to a new recipient. The identification number of the keys is generally stored in a digital wallet in the account of user. In order to claim the ownership of the Bitcoin, it is essential to have the Possession of the key. The key helps in ensuring the claim in the hands of each user. Bitcoin is a fully-distributed, peer-to-peer system. Presently, there is no single central organization which is responsible for controlling the functioning of Bitcoin entirely. The basic process through which Bitcoins created is called “mining,” which involves looking for a solution to a difficult problem. Any person in the Bitcoin network (i.e., any device running the full Bitcoin protocol stack) can perform the role of miner, as it requires the computer by which the user can use its processing power to find solutions to the prevailing problem. On an average, in every 10 minutes, a new solution is found by someone who engages in the process of mining and is rewarded with brand new Bitcoins. Essentially, the basic function of mining is concerned with the task of de-centralizes the currency-issuance and clearing functions of a central bank and replaces the need for any central bank with this global competition. The built-in algorithms are used in the Bitcoin platform that is concerned with governing the function of mining across the network. The one of the

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challenges that miners must tackle is to adjust dynamically in order to make sure that at least one person find a correct answer within 10 minutes regardless of the number of CPUs that are working towards solving the same problem. It is worth noticing that protocol also reduced the rate to 50 percent at which new Bitcoins are created every 4 years, thus result in limiting the total number of Bitcoins and the total number of coins that will create is approximately 21 million coins. It is estimated that the total number of Bitcoins that will be in circulation in future reach 21 million by the year 2140. As the rate of issuance of Bitcoin is continuously diminishing, it is expected that with the passage of time the Bitcoin currency is deflationary. Furthermore, it is impossible to inflate the price of Bitcoin by the means of “printing” new money above and beyond the expected issuance rate. It is important to note that Bitcoin is also referred to the protocol, a distributed computing innovation, and a network. The Bitcoin currency is really only the first application of this invention. Bitcoin can also be defined as the Internet of money, a platform to encourage the online transaction and is concerned with securing the ownership of digital assets through the modes of online networks.

3.3. WHY BITCOIN IS ‘GOOD MONEY’ FOR THE GLOBAL DIGITAL ERA There are many ways in which the role of Bitcoin in the global digital era can be analyzed. One of the important characteristics of Bitcoin is that it has no intrinsic value. While, on the other hand, Gold has immense intrinsic value. The Fiat money always has a value, because it is the supported by the government and the government is the guarantor of this money, which means if any uncertainty happens, the government is liable to the public to pay back the money. However, Bitcoin does not have this kind of facility, which means it has no role in our modern world of international trade and commerce. Thus, the question arises, what kind of “good money” in the present, globally integrated, Internet-based world economy? There is nothing wrong to say that Bitcoin lacks physical traits which are important to categorize any currency as “good money. Just like the case with the gold or other valuable items such as diamonds, or any bonds that are backed by the government, Bitcoins do not have all these features. Still,

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in the digital era, it is mostly believed that Bitcoin can be regarded as “good money” that is superior to any previously discovered or developed form of money. Earlier, Gold was not considered as money, but with the passage of time as people found its important characteristics, it became the medium of payment and is accepted all over the worlds. Some of the characteristics that make the gold stand out from the crowd include divisibility, inability to counterfeit gold due to its unique chemical composition. As is the case with physical commodity, it is impossible to bury gold in the earth, the scarcity of gold makes it attractive to its users. In addition, gold is a bearer instrument, which means it can be transferred from one person to another. This root of this perception that the physical object must be transferred from each other party while exchanging goods and services is in the history of human perception of value. It also helps in understanding that fact that why still approximately 85 percent of the world’s retail transactions are performed using physical currency. With the passage of time, global accessibility of goods and services increased, and it became impossible to always involve in physical transaction while transacting with foreign currency. Thus, it requires use of digital currency which is fast and secure. Bitcoin is one of the perfect examples that are benefitted from the digital era. Bitcoin is currently recognized as a new age in currency. It includes certain characteristics that make it “good money.” One can say that Bitcoin is also a tangible form of asset as its tangibility is in the form of mathematical calculation which is included in the Bitcoin mining. According to various experts in this field, there are chances that Bitcoin may become an incredibly important building block for the 21st century’s global economy. At the foundation of Bitcoin’s intrinsic value is the proof-of-work system that guarantees the creation and distribution of Bitcoins and is governed by the energy of computer system that plays an important role in required to secure the Bitcoin network. This additional feature of self-regulating mechanism in the Bitcoin transaction defines the core economic value of the units of account that is not associated with their trade or exchange value. Further, this energy and computing power bound paradigm creates a dynamic such that, as economic activity in Bitcoin expands, it naturally drives humanity to find sources

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of energy efficiency, thereby aligning Bitcoin with our global need for sustainable, inexpensive energy sources. Bitcoins are designed in such a way that it is possible to break the value of 1 Bitcoin in as many parts as possible. In addition, each transaction is verified by computer technologies before it is being processed. All these features make the use of Bitcoin a highly attractive global unit of account. One can determine and exchange the value of Bitcoins in micro-cents, and the transfer of the ownership of these such small units is done in seconds and is verified by any transaction counter-party. Bitcoin provides advance facility of easy distribution and reach to the users. As in the case of other forms of money, Bitcoin has competitive advantage over other as it has the reach of internet and data, a platform that provide the facility of medium of exchange (the Internet, software, mobile devices). It was estimated that the total number of users who used Bitcoin platform to send or exchange Bitcoin reached at 3 billion approximately. Bitcoin can be programmed, metered, and exchanged by available computer networks, thus, allowing productive utilization of earth resources and services. The Bitcoins are constructed in such a way that it is viewed as a scarce resource with a predetermined supply of potential coins. And it is this scarcity and predictable supply that make it as attractive as an underlying asset to bind to economic activity and trade. In addition, Bitcoin is also free from political influence. It belongs to the commons, a technology based on open intellectual property and the Internet. As the countries are moving towards developing an advance globally integrated economy and society, it looks serious that the type of money that binds us not be tied to any single nation-state. The central bankers and policymakers who are responsible for governing and regulating the monetary transaction in their country are trying to understand the implications of this profound invention. It is worth noticing that just like in the previous centuries the trade across different countries are done in exchange of gold, presently there is need to think about approach of digital asset-backed monetary policy and how it is possible to amalgamate advance technological innovation such as Bitcoin into the mainstream of world trade.

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3.4. BITCOIN’S TRANSACTIONAL PROPERTIES 3.4.1. Irreversible It is the primary property of the Bitcoin that once the transaction takes place, it is impossible to reverse the transaction, not even by the trader or by the platform at which the transaction takes place. In addition, even if a hacker transfers funds from a person wallet to his wallet, no one can reverse the transaction. Thus, the person who is dealing in Bitcoin must be aware of this fact; otherwise, it will create a problem for it, and no one has solution to get the person out of this problem.

3.4.2. Pseudonymous In a Bitcoin transaction, neither the account through which the transaction take place nor the transaction itself are connected to real-world identities. Bitcoins are usually sent and received on so-called addresses, which are seemingly random chains of around 30 characters. While it is easy to determine the flow of transaction, but it is not possible at all to connect the real world identity of users with those addresses.

3.4.3. Fast and Global Transactions that are done on a Bitcoin platform are fast and can be done from any part of the world. In addition, transactions are also confirmed in a couple of minutes. Since they happen in a global network of computers, they are completely indifferent to the physical location of a person that initiated the transaction. It takes the same time whether a person sending Bitcoin to someone in own city or in other country.

3.4.4. Secure The transaction in the Bitcoin platform is so secure that it is not easy for the hacker to find a way to hack the system. The transaction in the Bitcoin system is locked in a public key cryptography system. The owner of the Bitcoin that has its own unique private key which is used while sending Bitcoin Strong cryptography and the magic of big numbers makes it impossible to find any vulnerability in the system. It is generally believed that the address of Bitcoin is more secure than Fort Knox (Figure 3.2).

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Figure 3.2: Safety and security of Bitcoin.

Source:https://cdn.pixabay.com/photo/2017/11/23/06/15/security-2972105_960_720.jpg

3.4.5. Permission Less There is no restriction or legal age to use cryptocurrency. Its software can be download by anyone free of charge. After installing the software, one need to sign up and then can receive and send Bitcoins or other cryptocurrencies. The process which involves in the transaction of Bitcoin is technical; it requires the understanding of computer knowledge. The technology used by Bitcoin and the blockchain is complicated that it is only done by person who has expertise in this field. There are many technical manuals and online resources that delve into the underlying technology.

3.5. BITCOIN: A CURRENCY OF DIGITAL ERA Bitcoin, a new currency of the digital era, was created in the year 2009. It is generally believed that Bitcoin is based on the thoughts of white paper by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified. Some of the important characteristics of Bitcoin are that its transaction cost is less than traditional online payment mechanisms, offer more flexibility and its authority is decentralized, unlike government-issued currencies (Figure 3.3).

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Figure 3.3: Increase in the importance of Bitcoin.

S o u rc e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 8 / 0 3 / 2 6 / 1 9 / 0 7 / B i t coin-3263654_960_720.jpg In addition, there is no physical appearance of Bitcoin, the balances of Bitcoin are kept on a public ledger in the cloud, along with the details of the Bitcoin transaction, and is verified by using a great amount of computer energy. There is no government that backed or support the Bitcoin, neither the value of Bitcoin is as valuable as a commodity. Despite the fact that Bitcoin is not a legal tender, charts of Bitcoin is always on upward trends, and encouraging the creation of many other virtual currencies (VCs). All the other coins that work on the same platform are called altcoins. The value of the Bitcoin is highest among all the cryptocurrencies that are presently traded in the market. The balances of the Bitcoin are kept in the form of public or private key that include long sequence of letters and numbers linked through the mathematical encryption algorithm that was used to create them. The public key is used to send and receive the Bitcoin from one party to another. Just like the ATM pin of bank, Bitcoin also has the private key that is confidential and is used in the Bitcoin transaction process.

3.5.1. How Bitcoin Works? Bitcoin is one of the first digital currencies that functions by using the technology to initiate transactions. Those people or group of people that engage in the Bitcoin network and use the energy of their computer CPUs are called miners that get the rewards during the Bitcoin transaction and also the transaction fees that are paid in the form of Bitcoins. These miners enjoy the decentralized authority that makes the Bitcoin stand out among monetary

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currencies. The Bitcoins are created at a fixed and diminishing rate, thus making the total supply of Bitcoin stood at approximately 21 million. One Bitcoin is divisible to eight decimal places (100 millionths of one Bitcoin), and this smallest unit is known by the name Satoshi. In addition, if there is common acceptance between the miners, then the Bitcoin is further divided into even more decimal places. The mining of Bitcoin is tasked by which the Bitcoins are created and come into circulation. The mining process is concerned with the activity of finding a solution to the difficult mathematical problem to create new block that is added to the blockchain, and the minor that solved the puzzle receive the reward in the form of Bitcoin. In 2009, the block reward was 50 new Bitcoins; while it reduced to half every four years.

3.5.2. What’s Bitcoin Worth? As of April 2017, the total value of Bitcoin is approximately $1,223 – a huge jump from the year 2016, when the total worth of Bitcoin is approximately $770. Presently, in the year 2019, the total value of Bitcoin is $4100, three times higher that it was in the year 2017. While in the year 2018, the value of Bitcoin reached at $19000, but due to inconsistencies and ban in many countries, the value of Bitcoin falls significantly. The total value of Bitcoin depends on the size of its mining network. With the increase in the network of the Bitcoin, it becomes more difficult and expensive to mine the Bitcoins. Thus, with the passage of time, the price of Bitcoin is continuously increasing as the cost of mining of Bitcoin rises. The energy used to mine the Bitcoin tripled over the past twelve months.

3.6. BITCOIN BUSINESS OPPORTUNITIES 3.6.1. Start Mining Most of the people are of the view that because of the scarcity of Bitcoins, mining is not profitable in 2019. However, mining is still profitable, but it requires huge investment to start the mining operations. Because of the stiff competition in the mining sector, there is need to invest heavily in acquiring good quality mining hardware such as GPU or ASIC mining chips to get a competitive advantage. The use of these two advanced software will help in getting a better result than the use of CPU directly.

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Before establishing the mining firm in a country, it is important to consider the cost of the electricity as well because mining operations consume huge electricity approximately 1000W during the mining process. Therefore, a country where electricity cost is higher result in adding more cost to the mining operation. This may result in reducing the percentage of your profit and make your organization difficult to survive in the market. Thus, one can avoid this situation by choosing a location with renewable or very low-cost electricity.

3.6.2. BTC Merchandise Recently, there has been significant rise in the demand for BTC-related merchandise. The logo of Bitcoin has been successful in gaining the popularity among public, and the present demand of Bitcoin shows the love of people for Bitcoin. There is increase in trends of BTC-related shirts, patches, poster, screensavers, etc., and on top of being able to use the BTC logo freely; they can also utilize one of the many blockchain content platforms to offer their products securely.

3.6.3. Remittance Payments The services such as BTC remittance has been quite popular globally and has observed significant success. It is generally seen that most of the developing countries are relies greatly on remittance payments and no matter where the person lives in developing country, there is serious need of this service. The remittance industry deals with billions of dollars in an economy and BTC helps in getting people to accomplish a higher level of service when compared to the current business model.

3.6.4. BTC ATM It is worth noticing that many people view BTC ATMs as an essential part in the crypto space. The price of these units is not high, and it helps in earning profits easily by providing the facility to people of purchasing the Bitcoin directly from the kiosk. One of the important features of this ATM is that most countries do not allow using these ATMs to circulate fiat currency; thus there is no need to worry about filling the machine with cash (Figure 3.4).

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Figure 3.4: Bitcoin ATM. Source: https://farm2.staticflickr.com/1852/44346655322_65f0cac4a9_b.jpg

3.6.5. Payment Processors Any business owner can directly enter into the crypto space by purchasing a crypto payment processor. The processing of cryptocurrencies has become quite popular in the past few years, and most of the processors allow their users to multiple types of crypto. The payment processors that are of good quality allow their users to even withdraw their funds in BTC or fiat currency. This allows their users to avoid heavy loss at the time of BTC market fluctuations.

3.6.6. HODL To HODL or Hold on for Dear Life, is a phrase that describes the type of Bitcoin investor that usually purchases Bitcoin for the purpose to hold it. There is an important reason behind this motive. There will be a total 21 million Bitcoins that will be mined over a period, out of which 17 million in already in circulation. It clearly states that there are higher chances that

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the prices of Bitcoin will raise in future as due to limited supply of Bitcoins.

3.6.7. BTC Groups There is different blockchain based investment groups established all over the world in a recent few years. It provides opportunities to crypto-investors to meet and discuss future projects, developments, and growth perspective in the marketplace. It is generally less expensive to organize a blockchain meet, and it also gives the organizer the opportunity to make the potential client as they meet the person and they could end up becoming lifelong business partners, which help in making your joint ventures to accomplish its goal. Most blockchain groups charge a small membership fee, which can also add to the overall profitability of this venture.

3.7. WHAT MAKES BITCOIN VALUABLE? In the modern digital era, the digital currency should have possessed at least these three characteristics: •

There should be no central authority that governs the Bitcoin. It should be free from any authority, so that no one can manipulate the power and printed the currency at their will. Thus, it allows to not increase the value of Bitcoin deceitfully. • The currency has accessibility across the national boundaries, which means it can be sent or received from one country to another without any restriction. No one has the power to limit the amount of Bitcoin that can be sending from one party to another. • It should be apolitical, which means it does not engage in practices of favoring one specific system or group of people. In a nutshell, these (among many others) are the following characteristics of Bitcoin, which appears to be best alternative among any fiatbased monetary system. Bitcoin is the world’s first decentralized digital currency. As it is the first digital currency, its value is not determined by any person or group of people or any central organization. It is determined by the network capacity and on the market conditions. Anyone can send or receive the Bitcoin from one party to another without getting it to knowledge of others. It ensures the transparency in the transaction which is the specialty of the Bitcoin. It is well known that Bitcoin is free from any kind of oppression, dictatorship, and

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hyperinflation, and is a safe and secure transaction process that is free from any bug. The supply of Bitcoin is limited, which is stood at approximately 21 million total Bitcoins, and no one has the right or authority to increase the number of Bitcoins presently as well as in the future. Also, there is complete data available about how many Bitcoins were released at what rate and the date and time at which the last Bitcoin will be created. It is not easy to understand that why a decentralized currency is of high importance to people living in first-world countries because the money used in their society is most likely very sound, or it seems to be. In order to understand why Bitcoin is of high importance in first-world countries, it will be easy if they found the reason why fiat money is not sound in the first world economy.

3.7.1. The Problem with Fiat It is worth noticing that any money that is governed or regulated by central bank is not truly sound, when you consider the big picture. The primary reason behind this is the motive of governments to create a monetary system that allows them to manipulate the supply of money of their own country, maintaining the value of their currency by ascertaining the world economy to depreciates or appreciate the value of their currency in accordance with the same. The problem is that “something” has slowly been worth less and less since fiat money was taken off of the gold standard. The reason behind this is commonly known: Governments all over the world always prefer to spend more than their income sources such as income from taxes, from government business or from other activity. It is called the deficit spending, which means the total expenditure exceeds the total save in the current financial year. In order to meet the expenditure, they manipulate their power and print enough money for their needs. When more money is printed without any regulation and circulated into an economy, then it results in decreasing the value of currency that is already in circulation. The main importance of Bitcoin is that it is designed in such a way that it results in having a positive impact in people’s lives that live in a country that have most unstable economies. Venezuela and Argentina are perfect example of this, where the governments mostly involve in manipulating their own money. There was time when countries such as Argentina and Venezuela have governments that involve in manipulating practices of printing their own currency in such a large quantity that their own people did not find

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enough time to spend their whole money before its value diminished. It is not the case with these two countries. There are many other countries that experienced the same problem multiple times and, as a result, their entire monetary systems fell apart, and affected citizens had to find an alternative medium of exchange. Because of all these situations, People living in those countries want freedom as a human right, and the responsible governments that ruin their own money also take their people’s economic freedom. It results in taking their own rights to access economic opportunities that are not with the case of countries that have strong economies, and thus it results in changing their perception, and now they demand a currency that can’t be controlled by a reckless central authority. In the year 1912, Ludwig von Mises, a renowned Austrian economist, wrote in The Theory of Money and Credit that sound money “have two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.” He continues, “It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments.”

3.7.2. Why Do We Use Fiat Money? The primary reason of the popularity of current monetary system is that it has been present in the economy since historical times and till now people’s perception does not change towards it. It is not easy to change the old perception of people as people alive today are using the current monetary system since they were born. While, on the other hand, most of the people in a society are now accepted that the gradual increase in price for everything from groceries to education is a natural phenomenon. As you noted, it is hard truth that price of goods and services will increase forever and the prices of goods that people are paying presently will almost double in next few decades, just like the prices people are paying today is almost double of what we were paying in 1990’s. It is common acceptance among people in society that the rise in the price of goods and services are the natural result of inflation, and they are correct in their level of understanding, but the hidden fact is that the inflation occurs only because of manipulation practices by the central government of a country.

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Unfortunately, when people are used to something for so long, they naturally find it hard to believe that a newer way might be better. All these bugs or flaws that are generally seen in the fiat monetary system do not exist in Bitcoin. The supply of Bitcoin is fixed by mathematical algorithms in a network, and it is impossible to manipulate these to create new block of Bitcoins. In addition, the functioning of Bitcoin is designed in such a way that it is not easy to find any flaw in these functions. It is technical process and includes so many complexities, so even hackers also avoid these systems for embezzlement. The rate of distribution of new Bitcoins is also fixed into the economy just like the approximate date when the last Bitcoin will be created. Bitcoin also has no public face that can strongly influence the direction of the currency. All these prevailing flaws in current system bring value to Bitcoin.

3.8. BLOCKCHAIN TECHNOLOGY COULD CHANGE THE WORLD MUCH LIKE THE INTERNET DID It is commonly known that many technologists have interest in Bitcoin being used as currency, but they are much more excited about the algorithms or formulas that are used in Bitcoin mining process called the blockchain. Most of the people view the blockchain as the best way among those that are presently available to initiate transactions and contracts that affect every aspect of life (Figure 3.5).

Figure 3.5: Technology in Bitcoin.

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Some people realized that the future applications of the blockchain are impacting the day to day life in the same way as internet did few years back. Some people that have expertise in this field are of the opinion that the blockchain will be widely adopted within ten years; while, on the other hand, some other are of the view that it may take 20 to 30 years to fully accepted the blockchain. Finally, the other technology which has significant impact is the development of quantum computing, which is just as same as computers on steroids. Innovations in quantum computing may result in having significant impact on cryptocurrencies and overall development of blockchain and affect national security. The implications of blockchain technology are immense, according to Marco Iansiti and Karim Lakhani, authors of a recent article in Harvard Business Review: “With blockchain, we can imagine a world in which contracts are embedded in digital code and stored in transparent, shared databases, where they are protected from deletion, tampering, and revision. In this world, every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored, and shared. Intermediaries like lawyers, brokers, and bankers might no longer be necessary. Individuals, organizations, machines, and algorithms would freely transact and interact with one another with little friction. This is the immense potential of blockchain.” However, the impact of this technological innovation will be massive. It is estimated that the complete acceptance of blockchain into our economic and social infrastructure will take next few years. The process of adoption will be steady and gradually, not instant, as waves of technological and institutional change gain momentum.” According to a tech innovator, Bernard Golden, blockchain will arrive faster in the economy than it is expected. According to him, blockchain will be accepted in the next few years rather than few decades. Blockchain—a peer-to-peer network that is presently more popular on the Internet—was introduced in October 2008 when the proposal of the Bitcoin accepted, a VC system that curtails central authority and ensures decentralized authority for circulating currency, transfer of ownership, and confirmation when the transaction is processed. Bitcoin is the first application of blockchain technology. Some of the hacks that are experienced in cryptocurrencies and that result in downgrading the popularity of Bitcoin found not in the blockchain itself but in separate systems linked to parties

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using the blockchain. With the increase in interest among companies for cryptocurrencies, private blockchain-based development is taking place in the financial services sector, often within firms that are small in networks. Thus the cooperation or coordination level between them is less. For example, financial services companies are now realized that with the establishment of blockchain networks with a limited number of trusted counterparties are now help in reducing the transaction cost significantly. Nasdaq is working with one of the popular blockchain infrastructure providers, chain.com, in order to provide the facility for processing and validating financial transactions. JPMorgan, Bank of America, Fidelity Investments, the New York Stock Exchange, and Standard Chartered are testing the technology of blockchain in a way to replace the paper-based and manual transaction process in the field of trade finance, cross-border settlement, foreign exchange, and securities settlement. While on the other hand, the Bank of Canada is testing a digital currency called CAD-coin for interbank transfers.

3.8.1. Current Uses for Blockchain Technology 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

It defines the ownership of modules in app development. It is the proof of ownership for digital content storage and delivery. It is also the proof of ownership for sales and purchase of digital assets. It promotes and encourages digital security trading: ownership and transfer. It helps in digitization of contracts and documents. It helps in using the facility of decentralized storage using network of computers. It encourages digital identities which is important in protecting the privacy of its customer’s clients. It provides Escrow/custodian service for gaming industry. Smart contract IT portal used in blockchain helps in executing order fulfillment. Decentralized patient records management. Proof of ownership for digital content. It also helps in digitizing company incorporations, transfer of equity. It allows decentralized IT resources for home and business. The blockchain technology helps in authenticity for employee

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15. 16. 17.

peer reviews. It also encourages Point-based value transfer for ride sharing. It provides decentralized prediction platform for share markets. It plays an important role in anti-counterfeit digitization of assets.

3.9. MINING OF BITCOIN When the transaction is initiated, then it is transferred to Bitcoin network. The process by which the transaction included in a block is called mining. The complete mining process in Bitcoin is based on computation. Transactions are bundled into blocks that require large amount of computer energy to prove, but only a small effort of computation is required to verify it as proven (Figure 3.6).

Figure 3.6: Bitcoin mining technology.

S o u rc e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 8 / 0 1 / 1 8 / 0 7 / 3 1 / B i t coin-3089728_960_720.jpg All this group of activity together serves the purpose of mining and is concerned with two goals in Bitcoin: in the mining process, new Bitcoin is created in each block, just like the new money is printed by central bank. The total number of Bitcoins that is created in each block is pre-defined and reduced with the passage of time. Mining creates trust by ensuring that transactions are only confirmed if enough computational power was devoted to the block that contains them. Large number of blocks means large amount of computation that means there is more trust. The best way to explain the mining is to define the example of giant competitive game of Sudoku that resets every time when

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someone solve the problem and the difficulty level change automatically in a way to ensure that it takes approximately 10 minutes to solve the given problem. Imagine a giant Sudoku puzzle, in which there are thousand rows and columns in size. If someone shows you the completed puzzle, it will take a few minutes to solve the complete puzzle. However, if a few squares in the puzzle are fixed and the rest is empty, it takes so many efforts to solve the complete problem. The level of difficulty in the Sudoku can be changed by changing its size (change in the number of rows and columns), but the verification can still be done by putting less efforts even if it is very large. The “puzzle” which is used in Bitcoin is based on a cryptographic hash and possesses the same characteristics as in the game Sudoku: it is very difficult to solve the complete problem but easy to verify, and the level of difficulty is also adjusted in this also. The person who is participating in the Bitcoin network as a miner joins thousands of other miners in every 10 minutes in a global race to find a solution to a block of transactions. The process to get the solution to a problem is called “Proof of Work,” requires quadrillions of hashing operations per second across the entire Bitcoin network. The algorithm for “Proof-of-Work” is concerned with the task of frequently hashing the header of the block and a random number with the SHA256 cryptographic algorithm, and this process continues until a solution matching a pre-determined pattern emerges. The first person that is successful in finding solution to a problem wins the competition round and publishes that block into the blockchain. With the increase in the number of miners joining the mining operations, the level of difficulty in the mining process is increasing. Because of increase in the traffic, the miners upgraded to more specialized hardware, such as Graphical Processing Units (GPUs), as used in gaming desktops or consoles. As the level of difficulty is continuously increasing, the mining operation will be profitable only if the mining is done with Application Specific Integrated Circuits (ASIC), essentially hundreds of mining algorithms printed in hardware, running in parallel on a single silicon chip.

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3.10. THE BITCOIN NETWORK (FIGURE 3.7)

Figure 3.7: Bitcoin network.

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3.10.1. Peer-to-Peer Network Architecture Bitcoin is structured as a peer-to-peer network architecture on top of the Internet. The term peer-to-peer or P2P means that all those computers that engage in the transaction process and participate in the network are peers to each other, which means they all are equal to each other in terms of performance and capacity and there is no special node attached to any computer and all of the computers are equal liable to share the burden of network services. All the networks are interconnected with each other in a mesh network with a topology that is usually flat. It is important to note that in the Bitcoin transaction, there is no server that is responsible for initiating the transaction, no central authority that is governing the transaction, and no structure within the network. Nodes that are present in a peer-to-peer network are responsible for providing and engaging in services at the same time with reciprocity acting as the incentive for participation. The Peer-to-peer networks are de-centralized and transparent in its functioning. One of the perfect examples in P2P network architecture is the Internet of 1990s, because during that time the nodes on the IP network were equal. The Internet architecture of is more hierarchical today that it was previously, however, still now, there is essence of flat-topology in the Internet Protocol. Apart from the Bitcoin, there are others highly appreciated application

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that run on P2P technologies such as Napster that allows users to share electronic copies of music stored on their personal computers with the help of internet and bit torrent as the most recent evolution of the architecture. The P2P network of Bitcoin architecture is far more than a topology choice. The design of Bitcoin is in such a way that it ensures peer-to-peer digital cash system, and the network architecture of Bitcoin is both a foundation and a reflection of that core characteristic. The thing that is of high importance in the P2P network architecture is to ensure the decentralization of control in a transaction process, and it can only ascertain by using a flat, decentralized P2P consensus network. The term “Bitcoin network” refers to the sum total of all nodes that are responsible for running the Bitcoin P2P protocol. Apart from the Bitcoin P2P protocol, some other protocols such as Stratum, is also used in the process of mining and lightweight or mobile wallets. These other kinds of protocols are provided by gateway routing servers that access the network of Bitcoin with the help of P2P network architecture and then allocate it to nodes running other protocols.

3.10.2. Nodes Types and Roles Nodes in the Bitcoin P2P network are equal, while each of them performs different types of roles and functions depending on the area of operations in which they are working. A Bitcoin node is a sum of different types of functions such as: maintaining the database of blockchain, routing, providing the facility of wallet services and mining. The nodes are concerned with performing the day to day function of participating in a network and may include some other functions. The primary role of all nodes is to validate transactions, ensures safety and security of transaction and maintains connections to peers. Mining nodes compete with each other in order to create new blocks by using advance hardware to solve the high complex algorithm. Some mining nodes are full nodes, which means they engage in a full copy of the blockchain while others are lightweight nodes, which means they engage in practices of pool mining and it relies on a pool server to maintain a full node. Some of the most common node types on the extended Bitcoin network are discussed below: •

Reference client (Bitcoin core): It includes miner, wallet, complete database of blockchain and network routing node.

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• • • • • •

Full blockchain node: It contains a network routing mode, complete database of blockchain. Solo mine: It includes mining function with a full copy of blockchain. Lightweight (SPV) wallet: It includes a wallet and a network node on the Bitcoin P2P protocol. Pool protocol servers: It contains gateway routers that help in connecting P2P network. Mining nodes: It includes mining function, with a stratum protocol but without a blockchain. Lightweight (SPV) stratum wallet: It includes a wallet and a network node on a stratum protocol.

3.11. CONCLUSION In the end, it is concluded that Bitcoin has been started gaining popularity and with the passage of time, it will be commonly accepted among people to initiate transaction. The people of today are commonly accepted Bitcoin from others as they want their money not to be manipulated by others. They do not want any central authority to govern their money. Also, the value of Bitcoin is continuously increasing as there are only limited Bitcoins that will be produced over a period. Thus, it gives other reason to prefer Bitcoin than other currency. While on the other hand Bitcoin is commonly used by traders as it gives higher returns than stock market. In addition, presently some of the countries show resistance to use cryptocurrencies and also imposed ban on use of such currencies. Still, with the urbanization and digitalization, no country can impose ban on use of Bitcoins as its transactions are done through internet and no one can ban on use of internet. Unlike fiat money, most people prefer to send Bitcoin from one country to another as it is fast, safe, secure, and involves less transaction cost. Also, there is transparency in the transaction of Bitcoin. In addition, Bitcoin allows its users to engage in safe and secure transaction and gives them full flexibility that makes it the better option as compared to physical currencies. Most experts in this field are of the view that Bitcoin will change the way the business works in few years.

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REFERENCE 1.

9byHalf., (2019). Bitcoin: A New Age Currency. [online] Available at: https://9byhalf.com/2017/12/05/Bitcoin-a-new-age-currency/ (Accessed on 7 May 2019). 2. Antonopoulos, A., (2015). Mastering Bitcoin. Beijing: O’Reilly. 3. Bitcoingold.org., (2019). [online] Available at: https://Bitcoingold.org/ wp-content/uploads/2017/10/BitcoinGold-Roadmap.pdf (Accessed on 7 May 2019). 4. Circle. The new shape of money, (2019). Why Bitcoin is ‘Good Money’ for the Global Digital Era. [online] Available at: https://blog.circle. com/2014/07/25/Bitcoin-good-money-global-digital-era/ (Accessed on 7 May 2019). 5. CoinCentral, (2019). The New Age of Bitcoin Business Opportunities. [online] Available at: https://coincentral.com/the-new-age-of-Bitcoinbusiness-opportunities/ (Accessed on 7 May 2019). 6. Cs.sjsu.edu., (2019). [online] Available at: http://www.cs.sjsu. edu/faculty/pollett/masters/Semesters/Spring14/chen/Bitcoin.pdf (Accessed on 7 May 2019). 7. Iacpcybercenter.org., (2019). [online] Available at: http://www. iacpcybercenter.org/wp-content/uploads/2018/03/Bitcoin.pdf (Accessed on 7 May 2019). 8. Lopp.net., (2019). [online] Available at: https://lopp.net/pdf/princeton_ Bitcoin_book.pdf (Accessed on 7 May 2019). 9. Magazine, B., (2019). What Makes Bitcoin Valuable? [online] Bitcoin magazine. Available at: https://Bitcoinmagazine.com/guides/whatmakes-Bitcoin-valuable/ (Accessed on 7 May 2019). 10. Mittal, T., (2019). Bitcoin for Beginners: Brief Overview of the Technology. [online] YourStory.com. Available at: https://yourstory. com/2017/11/Bitcoin-beginners-guide (Accessed on 7 May 2019). 11. Store.ectap.ro., (2019). [online] Available at: http://store.ectap.ro/ articole/1306.pdf (Accessed on 7 May 2019). 12. Sydenham Institute of Management Studies, Research and Entrepreneurship Education, (2019). Bitcoin: The New Age Digital Currency | Sydenham Institute of Management Studies, Research and Entrepreneurship Education. [online] Available at: http://simsree.org/ blog/Bitcoin-new-age-digital-currency/ (Accessed on 7 May 2019).

Chapter 4

The Blockchains: The Chains Keeping You Ahead

CONTENTS 4.1. Introduction ...................................................................................... 96 4.2. Trade and Emergence of Money ...................................................... 100 4.3. Blockchain: Restoring Transparency, Re-Establishing Trust ............... 107 4.4. Physical World Equivalence of The Blockchain ............................... 109 4.5. Applications of Blockchain Technology In Various Industries ........... 111 4.6. Challenges of Using Blockchain Technology ................................... 113 4.7. Conclusion ..................................................................................... 113 References ............................................................................................. 117

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Blockchain can be defined in a very simple way for continuous recording of data in a series which is stored under many computers that are not maintained by any single entity. This data stored with this technology are blocked as it can be more secured, but they relate to each other using the principle chain. The old system will also give the productivity, but it was time-consuming as systems may get slow when there is lot of work. Later, the new technology will more advanced and faster to provide information of all the records that has been stored in the new system. The blockchain technology has become very effective, and their properties have been unique and people while working on this type of technology. It is necessary to learn the property of the blockchain guide and how to work under the blockchain technology, and once the person got experienced and learn the ways of blockchain, then it will become blockchain developer. Blockchain technology is not as complicated as it looks like because it has been performed by the various industries just the transactions on the blockchain network needs to be get cleared from the other computer system and this technology automatically by just giving the input.

4.1. INTRODUCTION The blockchain will be used by many of the companies as it is considered as a smart invention. There has been lot of confusions when it comes to talk about the blockchains. The blockchain has become the biggest invention as it has given greatest benefits to the companies and there are some reasons to be worried that will might affect the future. Many businesses and industries have already achieved greater benefits because there has been improvement in the efficiency and speed of transactions, increased security and transparency. Blockchain Technology helps the companies to grow and modify their business which makes this technology so special. All the information of the digital world has been stored with this technology, and it has become the spine of a new type of internet. The currency or payment facilities that could help the people and recording all the transactions. The blockchain technology has become very effective, and their properties have been unique and people while working on this type of technology. It is necessary to learn the property of the blockchain guide and how to work under the blockchain technology, and once the person got experienced and learn the ways of blockchain, then it will become blockchain developer.

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If Blockchain is to be used on a global scale, then it must ensure security concerns are addressed. Blockchain avoids the risks of a centralized data system by storing data across its network. Therefore, hackers can’t exploit the vulnerabilities as they do in a centralized network. High-end encryption is used by the blockchain security methods. The use of public and private keys is very much in use by the Blockchain. A public key is nothing but the user’s address on the Blockchain. It has been assumed that Bitcoins are used in these operations. Bitcoins are recorded as belonging to that address when they are sent across the network. Private key is essentially a password that gives access to Bitcoin or other digital assets to its owner. Hence Blockchain data is not viable for corruption. The goal of blockchain is to allow digital information to be recorded and distributed, but not edited. That concept can be difficult to wrap our heads around without seeing the technology in action, so let’s take a look how the earliest application of blockchain technology actually works. Blockchain can be defined in a very simple way for continuous recording of data in a series which is stored under many computers that are not maintained by any single entity. This data stored with this technology are blocked as it can be more secured, but they relate to each other using the principle chain. There is something special with this technology because the industry can solve the queries and problems of the people. The blockchain network has been built with not any essential authority as it can be defined in a democratized system. But it is absolute and shared ledger which can be checked by the individuals so that they see the data records. On the other hand, anything which is made through the blockchain technology are very nature transparent, and everybody presence is responsible for their movements. The Bitcoin protocol is built on blockchain. In a research paper introducing the digital currency, Bitcoin’s pseudonymous creator Satoshi Nakamoto referred to it as “a new electronic cash system that’s fully peerto-peer, with no trusted third party.” There is a need for infrastructure costs for introducing the blockchain technology, but there are no transaction costs that are involved. The blockchain will be easy to pass the information from one type to another type in a safe and fully automatic manner. One party to a deal pledges the procedure by generating a block.

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There is large number of computers which relates to the internet where the block gets verified by thousands. The chain is maintained with the verified blocks which are stored through the net which means records should be unique along with the different history. The records and history should be right; otherwise, the whole chain will get disturbed, and it is not able to maintain millions of computers set. For example, when the people buy the railway tickets with some railway app or the web than the credit card company may cut some amount after completing the transaction. But the process has become easy with the blockchain for booking the railway tickets where the railway operator also saves on credit card processing fees. The passenger and the railway company are involved in the transaction process where the ticket is block so that the ticket blockchain technology should be used. Thus, the blockchain is an unfalsifiable, independently, and unique record for a monetary transaction on a blockchain. Although, after making the fees, whole transaction is recorded with the final ticket blockchain along with the entire train network or certain train route like every journey that has been taken and every ticket that has been booked or sold. Blockchain can also be called as Distributed Ledger Technology which is helpful in preventing all online transactions along with the fundamental anxieties and worries around transparency. The blockchain technology has make an impact on various industries such as finance, banking, governance, insurance, logistics, etc. along with the business situations with the payments, transfers, settlement, remittance, asset insurance. Blockchain has become necessary for the companies to adopt because applications of blockchain can become innovative whereas technology and business will equally understand its disorderly suggestions and create safety devices and machines through common agreement. People have become social animals as they have been not living in strong societies by sharing equal bond but due to further odds of survival in an aggressive atmosphere. Humans are quite been co-operated and contested with related human beings in the face of common pressures. There has been the solution for this problem so the humans can feel safer. The benefit of using the resources could be exchanging them without a fight which can be called trade transaction. This will result in exchange and barter-based understanding between them.

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The societies which have not been developed where the small transactions are involved. For Example, exchange of poultry or say livestock that would be completed between the human beings with the whole society as a spectator. These small transactions will help the societies to get the proper knowledge. It is necessary to discuss about the modern skills and development, it is important to have basic transactions from A to B which gives simplicity that increases the number of participants, and they are responsible for doing the transactions. The third party is also gets involved in the intercessors which are mainly required to have trust. Transparency has been the basic feature in the blockchain technology which may directly impact on the proximate and smaller societies which is exchanged by trust. Keeping the records can be seen by multiple parties as they are paper sensitive. This technology works in difficult situation, but it is easy to analyze as the data is being distributed for recording and storing the records data and this technology is also being called as encrypted. In other terms, it has become a digital ledger for any contracts, transactions, and this can be recorded without any support and can become independent data. There is one more feature in the blockchain technology when it is has been updated and become digital ledger in the several thousands of computers which either can be located at the same place. The blockchain technology has largely making an impact on the financial services sector as this technology has become successful for the digital currency. The people are so satisfied with this technology while working in different sectors because they can directly communicate and ask for transactions with the help of internet without being interrupted by any middleman or the third party. The transactions can be done step by step, and not everyone can see these transactions because it has important personal information, but it has been recorded for the safety as sometimes, the transactions get failed and to see it again, it should be recorded in the database for giving information in the future. The blockchain technology has been used in the most effective way when it largely decreases the data opening. In the modern world, it will get updated from time to time as it will share large and many shared copies stored in the same database which will become challenging to pay a cyber-

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attract or data break attack. With the blockchain technology, the process is becoming more secure, smarter, more efficient and transparent related to the old business processes.

4.2. TRADE AND EMERGENCE OF MONEY The trade has become the basic concept which have been started earlier along with the barter, but the trend has changed, and people realized need for a basis or common measure to make these transactions. Barter system has been processing which has been followed earlier if the things get matched with their expectation means the resources gets exchanged within the two parties (Figure 4.1).

Figure 4.1: Trade and emergence.

This has been considered as the strong factor in trade volume, but later, the money has been introduced for storing a value, medium of exchange which has been acted as a common standard of measure. From the past years, it has taken many producers including token, copper coins, gold, silver, cattle, etc. when if the current system of money both digital and physical hasn’t reached to the people. According to the experts, there has the large discussion in the commodity theory where the current system of money has been changed naturally from one of the useful supplies and merchandise over barter exchanges. The Cartal theory suggest that money is becoming more visible when there was a community agreement or sanction which means money will become the need for individual. The theory of bootstrap suggest that money is money and people will use the last theory named as gifting theory means that the people are basically a trading species along with three main responsibilities that is, to receive, to give and to counter.

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Money is essential as it plays a vital role in person’s life because it has become the need for the people and all the transaction can be done with the money in their account. When the trade has been spread than there is a need of accounting, record-keeping, accounting, and overall trust among contributors. These functions are being performed in the legal, banking, and accounting professions for keeping all the records in a day to day life.

4.2.1. Transparency and the Social Contract The transparency is majorly associated with the common visibility that will show the presence of transactions between the parties so that it will become the major part and successful achievement of early trades and make sure that early community members will able to check the transactions which results in parties to the transaction that could not go back to it. Transparency even though personal information on blockchain is kept private, the technology itself is almost always open source. That means that users on the blockchain network can modify the code as they see fit, so long as they have a majority of the network’s computational power backing them. Keeping data on the blockchain open source also makes tampering with data that much more difficult. With millions of computers on the blockchain network at any given time, for example, it is unlikely that anyone could make a change without being noticed. On the other hand, it is interesting to know the social contract which will act like a marriage. The bride, groom, and their families would broadly expose the determination to marry in the community because the community members are present for making sure that the social contract is visible to everybody which has also been accepted by the community. Blockchain forms the bedrock for cryptocurrencies like Bitcoin. Currencies like the U.S. dollar are regulated and verified by a central authority, usually a bank or government. Under the central authority system, a user’s data and currency are technically at the whim of their bank or government. If a user’s bank collapses or they live in a country with an unstable government, the value of their currency may be at risk. These are the worries out of which Bitcoin was borne. By spreading its operations across a network of computers, blockchain allows Bitcoin and other cryptocurrencies to operate without the need for a central authority. This not only reduces risk but also eliminates many of the processing and transaction fees. It also gives those in countries with unstable currencies a more stable currency with more applications and a wider network of

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individuals and institutions they can do business with, both domestically and internationally (at least, this is the goal.) There have been many examples of high transparency public displays for main events like marriage, birth showers, coronations, convocation of grades, peace treaties and death rituals, etc. But trade transactions are important in goods and services which have been moved as a separate place and across physically discrete locations. It is difficult in every trade to be broadcast among the population, but it become technologically and physically not possible. Pseudo-clear events were presented as alternatives, for example, library copies, registration of public as well as private documents, advertisement in newspaper, access to public records.

4.2.2. Technology and Transparency Technology has brought many changes that will help in making new machines and devices and making it more advance for the future. Keeping the record will be easier, and it will be visible because of advanced telecommunications and computers become dominant. The people are working on the automation technologies which will enhance the productivity so the more industries will participate in the process. The system which have developing exist with the new technology of automation which later will become the light of new technology. It has been observed that the systems lacking with the new technology will get replace with the new system. The old system will also give the productivity, but it was time-consuming as systems may get slow when there is lot of work. Later, the new technology will more advanced and faster to provide information of all the records that has been stored in the new system. It has been possible with the technology to clearly spread information and knowledge about mutual deals. This will also help in keeping the old information or small kind of transactions. Bitcoin is a perfect case study for the possible inefficiencies of blockchain. Bitcoin’s “proof of work” system takes about ten minutes to add a new block to the blockchain. At that rate, it’s estimated that the blockchain network can only manage seven transactions per second (TPS). Although other cryptocurrencies like Ethereum (20 TPS) and Bitcoin Cash (60 TPS) perform better than Bitcoin, they are still limited by blockchain. Legacy brand Visa, for context, can process 24,000 TPS.

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With many practical applications for the technology already being implemented and explored, blockchain is finally making a name for itself at age twenty-seven, in no small part because of Bitcoin and cryptocurrency. As a buzzword on the tongue of every investor in the nation, blockchain stands to make business and government operations more accurate, efficient, and secure. According to the experts, they found that how the interactivity and transparency will make an impact on the citizen trust in governments. It has been analyzed on the new technology with the internet use that has been positively linked with transparency satisfaction. On the other hand, it will negatively be linked with the interactivity satisfaction. But both transparency and interactivity are linked with trust in government representative because transparency is needed in many cases. The feature has been quite relevant that helps in running the businesses and corporations.

4.2.3. Technology and Trust The factors in the technology and trust lies in the new system and the advancement in technology helping the human beings with the transactions like purchase goods and services around the world. The value of money is more advanced to covert the bank balance in the binary form. Digitization is the term which is used so that the information gets converted into a digital format, so the half of the transactions are easily lend itself to digitization. On the other hand, the title formation of goods and services allowed the second or physical ling of a transaction that can be converted into the digital format. This will benefit and improve the whole area of micropayments, digital transactions, internet proliferation, and e-commerce. There have been some issues while working through the internet which sometimes fail to create trust and identity securely. The layers in the protocols and cryptography are made to mechanize the makeshift of systems based on open access. Others noted that there are systematic issues in the banking system that are wider than the digital technology agenda and that result in many unbanked individuals remaining unable to become part of the banked population. Any strategy to increase financial inclusion should bear in mind what one participant termed the ‘systemic global problem of the left-behinds’ and be wary of furthering a situation in which society is split between the ‘superconnected’ and the ‘others,’ a split which may not be simply generational.

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In this regard, it was suggested that using historical evidence on the introduction of different financial products and their financial and wider social consequences would be helpful to inform future strategies. Another important factor that was highlighted is how digital platforms and currency innovations can help those individuals who don’t want to use the traditional banking system. However, one participant queried whether this would, in fact, help to change behavior and the relationship with banks and banking services, or simply reinforce the ability for some people to ‘step out’ of the system, which may not necessarily be a positive thing. It was also highlighted that the number of people wary of the Internet and reluctant to use digital platforms should not be underestimated, and may serve to further compound exclusion. Another important factor that was highlighted is how digital platforms and currency innovations can help those individuals who don’t want to use the traditional banking system. However, one participant queried whether this would, in fact, help to change behavior and the relationship with banks and banking services, or simply reinforce the ability for some people to ‘step out’ of the system, which may not necessarily be a positive thing. It was also highlighted that the number of people wary of the Internet and reluctant to use digital platforms should not be underestimated, and may serve to further compound exclusion. The objects can be small or large that can be recognized firstly by IP addresses listed to them. It is the responsibility of the people to register the system with the IP address and get certificate provided by the Trusted Certification Authorities. These kinds of entities convert digital traffic at the time of doing business or trade with unfamiliar customers. It is the responsibility of the human beings to store and record all the information so that it will become a trusted online entity. For keeping and making the successful records, there has been introducing of new tool or trusted entities for storing the information for all the citizens. The user-generated data and information in exploited and stored by trusted entities like internet service providers, banks, online retailers, new age information companies and social media enterprises. There is a lot to talk about technology in the blockchain for directed society left from common visibility and transparency towards the kingdom of trust. There has been the question why to keep old records that will make the data heavy in a matter of time, and there are so much different types of records. The technology has been changes with the automation as new tools

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have been introduced in the market as there can be proper testing of these tools which will store large amount of information and reduce the risk of loss of necessary details as they can become trusted entities and secured for a longer term.

4.2.4. Transparency and Trust in the Digital Age The introduction of current or new systems is involved with the automation of existing layers of disorganizations over the past years. The more advancement in the technology that will help in making the different designs for the system and it also allows power of transparency and push back advance of trust. It will help in exploring the designed model of the system because transparency can easily take place for the priority over trust in many cases of business transactions. There have been generally two parties that are involved in the trade and service transactions, and the both the parties are giving positive response by using the current technology and now, it is also become possible to maintain all the record keeping transactions so that confidence on trusted intermediaries should be less. Such a newly designed system could broadly expose: • The fact that a transaction took place; • The fact that there are two or more parties to the transaction; • The date and time when it took place; • The terms of the transaction. Such inclusive promotional of the transaction itself could establish resistant of its reality and presence. It would be similar to each case distributing a press issue and statement, in a consistent machine-clear arrangement about the operation. The structures essential in such a promotional are mentioned below: •

•

To evade a scoundrel participant imitating parties to the deal, they would subject a press issue upon their letterhead, from the position or location of their offices, on their certified and official “safe” website, etc. The members and contributors would put private scripts or other identifiers (for example, company seal) that are improbable to be in ownership of a scoundrel actor. The citizens could make their details personal or private which can be protected by the following passwords and there are some common details like date or time at the time of transaction so

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that both the parties would see. If there is some mishappening or one party cannot see so they may ask to other part to give the information. On the other hand, both the parties will problem a single joint press release with every type of information under their company seal, common letterhead or both the websites. • A great set of chance “trustless” observers could interpretation this media announcement distributed by both parties. They could confirm that mutually press announcements certainly cover and hold individual and private documentation scripts and other identifiers that must be in their ownership and control. This would lead the observers to trust that the press announcement about the business is certainly free by the supposed parties. • For making it more complicated and difficult to argument an acknowledged and recognized transaction, it would be likely to reel up different press announcements and issues into a block of press announcements and additional support and favor them as a block with extra added “consensual protocol,” for instance, through a session taken in the meeting where the observers see and together decide that all the press announcements and issues in the block are acknowledged and fair. • Once believed inside a block, the only way to argument it would be resume the meeting and go over the intricate “consensus protocol” procedure repeatedly. There should be more difficulty in handling the salutation’s for both the parties after clashing of transactions which have been completed by one party, and it’s in a block. • Lastly, to make it excessive to reenter old transactions, blocks could be bound organized, every block referencing a preceding block to guarantee that if a transaction in a block is uncertain, not the agreement for that block must be revised, then that all successive blocks should needs to be rebuilt. The blockchain will be more effective and stronger with the specific information that has been stored. The blockchain has been updating successfully, and a single blockchain can contain all the important information without showing any error that will increase the high productivity and the transactions done by the parties should be effective. It is helping in speeding up of transaction settlement type and earlier it will take lot of days for solving the problems and queries

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of the parties as this is the advantage of the blockchain technologies. The technology has provided efficiency for enhancing transparency between all parties and unlocking capital for making the traditional trade transactions.

4.3. BLOCKCHAIN: RESTORING TRANSPARENCY, RE-ESTABLISHING TRUST The blockchain technology have been useful in restoring transparency and restoring trust, but there has been lot of schemes that has been introduced and by that time, the Bitcoin currency has been established in the form of digital currency which has been distributed across the globe which is also called as cryptocurrency. The idea for peer to peer transaction has become useful for every human being and directly transfers of payments in the form of cash, credit cards or ACH Payments without being trusted middlemen. The need to consider the ways in which barriers to financial inclusion might be addressed by digital platforms was the fourth area explored as part of our discussions. Suggestions included innovative methods of providing collateral or identification for transactions for those without traditional sources of either, such as using mobile phone payment records as evidence of credit history; using Blockchain technologies to facilitate recognition and legal ownership of assets; developing community currencies relevant to local requirements and conditions; developing digital currency innovations specifically to meet the needs of people in lower income brackets, such as a currency that could be used without incurring sales tax; and using incentives to encourage engagement with digital platforms, such as offering a form of universal basic income (UBI) available only on a certain digital platform. It was widely acknowledged within the group that perhaps the most fundamental factor associated with inclusion is that of basic connectivity and the cost of data. Inclusion initiatives may facilitate banking access for the digitally included, but still exclude those without a basic level of Internet access. Similarly, as connection speeds increase and platforms are developed on the basis of this, the speed differential in slower geographies may be more keenly felt. If the person has ever spent time in the local Recorder’s Office, then the process of recording property rights is both burdensome and inefficient. Today, a physical deed must be delivered to a government employee at the local recording office, where is it manually entered into the county’s central

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database and public index. In the case of a property dispute, claims to the property must be reconciled with the public index. This process is not just costly and time-consuming — it is also riddled with human error, where each inaccuracy makes tracking property ownership less efficient. Blockchain has the potential to eliminate the need for scanning documents and tracking down physical files in a local recording office. If property ownership is stored and verified on the blockchain, owners can trust that their deed is accurate and permanent. There has been lot of improvement and advancements in computer science, cryptography, and market incentives. Satoshi Nakamoto has made the changes in the payment system so that the parties cold transact and perform, verify, and query the state of a transaction in Bitcoin secretly. The system gets changes when it has been designed where the voluntary nodes should verify, distribute, and spread transactions in order to achieve the true history of transactions without any continuous or trusted nodes. The system will quite be working very well that results with the original recordkeeping technology that will led to Bitcoin cryptocurrency. Nakamoto outlined steps in running the network as follows: •

Nodes that are present in the network may leave anytime, but they are always voluntary. • Transactions are available and issued throughout the system. • Nodes fold transactions not blocks in order to verify transactions. • The node that are available in the network are very effective and give solutions for searching a different puzzle that led to a proof of work. • When the nonce is searched then they publish across the network and add it to their block. • There are various types of different nodes that are available in the network which is used for rechecking all the transactions in the block and make sure that it should be legal and effective by getting the signal so the information will be received to the next blockchain. The transactions can be done step by step as it also works in the mining process where the incentivize nodes to achieve POW by spending computing powers. The blockchain technology has largely being used in the financial institution in order to make financial transactions, and every time there has been some testing is done for improving the features in trade application.

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There is another way for payment of unpaid transaction fees by citizens for pushing their transactions into some block. Rechecking the blocks is necessary so that it cannot found by the attackers and keep the network secure. Bitcoin blockchain has taken all the transactions in a decentralized, online, transparent, and open record of all dealings in Bitcoin. It has been developed in such a way that every new Bitcoin will get a new ID for making the life transaction to be stored. There may be some alternative uses in the blockchain which is connected to Bitcoin as it has become an early discovered field for making continuous innovation which lead mainly by technological start-ups and young entrepreneurs. The transactions will be more secured which may eventually lead to increased safety and security as well as greater efficiency. The digital way of doing transactions which will keep the record secure so the consumer can make as many pairs of private and public keys whatever they desire. As a result, the person wallet can have more than one or only one public or private key pairs along with the Bitcoins allocated to them. Blockchain provides enough awareness to the human beings which has also become creative among stakeholders and there many startup companies across the world as they are using the blockchain technology so effectively and continue to get momentum at the time of performing multiple functions for converting to real value transactions in the market place.

4.4. PHYSICAL WORLD EQUIVALENCE OF THE BLOCKCHAIN Nowadays, people talk about currencies in the real world. The physical currency world is more being related to the blockchain technology. Many people will talk about trade finance and their transactions such as insurance, export credit, factoring, issuing letters of credit, lending, etc. The currency has been different in the countries where the blockchain is looking to address is global trade and trade finance. There has been a lot of difficulty for keeping the paper documents which get lost as this was happened earlier. The blockchain technology has enhanced efficiency by replacing the flow of paper for trade finance with digital data flows (Figure 4.2).

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Figure 4.2: Blockchain of things.

Source: https://thenextweb.com/contributors/2017/09/21/blockchain-techmissing-link-success-iot/ The banks get the benefit with the blockchain technology as they have introduced a unique ID number so that it will not get matched with the other currency which can be safe and secure in the blockchain as it can be built in the form data structure. The blockchain will give the best advantages that will help many companies who are looking for setting up the business. The bank who introduces currency notes will ensure that the id is unique, and it should not get matched with the other currency notes. The entire history is maintained in the blockchain selecting them from transactions and adding them to blocks, and it can be solved by its unique each block of transactions that is why this technology will sometimes become more complex. There have been many questions arise for setting of the new companies that how does the blockchain technology works and how it will be private or opened and where it is secured or not. The information for all the transactions is secured, but they are not free of cost. Users continue to drive up the electricity bills in order to validate transactions on the blockchain despite the cost of mining Bitcoin. There have been some challenges for keeping the information confidential, but sometimes, it allows for doing illegal trading and performing unnecessary activities on the blockchain network.

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4.5. APPLICATIONS OF BLOCKCHAIN TECHNOLOGY IN VARIOUS INDUSTRIES The various applications of blockchain technology are using by the various industries such as government, travel, and leisure services, retain, and CPG, Financial services. It is necessary to discuss about the various applications in the various sectors as discussed in the following subsections (Figure 4.3).

Figure 4.3: Applications of blockchain technology.

4.5.1. Financial Services The applications of blockchain technology has largely been used in the financial services sector as it can be executed in many new ways depend on how big or small is the situation. It just makes the process so smooth, but they are majorly liked with the payments or transactions and asset management as long as programmed trade lifecycle where every people should have right to use the similar data about a transaction. As a result, this will eliminate the necessity for intermediaries or brokers that effects efficient management of transactional data and transparency. Blocks store information about transactions, say the date, time, and dollar amount of your most recent purchase from Amazon. (Note: This Amazon example is for illustrative purchases; Amazon retail does not work on a blockchain principle). Blocks store information about who is participating in transactions. A block for your splurge purchase from Amazon would record your name

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along with Amazon.com, Inc. Instead of using your actual name, your purchase is recorded without any identifying information using a unique “digital signature,” sort of like a username.

4.5.2. Healthcare Blockchain has also become successful in the healthcare sector as it is able to enhance the interoperability, privacy, and security to transform and convert the healthcare data. The people should make sure that should be no sharing of data. No one should get stand with the computer system for the safety because the blockchain has already secured the data and allows protected sharing of health care data for those people who are involved in the process. It eliminates the interference of the third person which also avoids the overhead costs. The healthcare records along with the blockchain have also been recorded as the distributed in the systems but ensure that every record needs authenticity and privacy.

4.5.3. Government The government sector will also come with the blockchain technology for converting the government’s services and operations that holds the power. It plays a vital role in enhancing the transactional challenges in this sector. The rechecking of data is also enabled in the sector as the blockchain can give efficient management of data between various departments of the government. It provides better way to display and monitor and check the transactions for improving the transparency.

4.5.4. CPG and Retail The blockchain technology has now been introduced in the CPG and retail sector because earlier there are some fraud transactions that have been made and value of goods will increase without any reason. There happens because of stolen the data and showing the wrong transactions in the supply chain operations. That is why it is necessary to manage and prevent loyalty points and restructure the supply chain operations.

4.5.5. Travel and Hospitality The blockchain plays a key role in the travel and hospitality sector because it has helped in changing the industry very efficiently and effectively. It

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becomes useful in storing necessary documents like IDs or passports or money transactions, loyalty, and rewards, reservations, and managing travel insurance.

4.6. CHALLENGES OF USING BLOCKCHAIN TECHNOLOGY It is necessary to understand the concept of blockchain, and there should be proper awareness of how it works. This has become the challenges for many industries including financial service sector to understand the blockchain technology. The changes are necessary for these sectors but it will not free of costs for maintaining infrastructure in the organizations. The people come from the IT background will understand the blockchain technology in an effective way which will also benefit the organization and remove the barriers by adopting the blockchain technology that will help in making shift to the whole process and developing the innovative ways for doing things in the organization. Observing and fulfilling with the current or present rules and certifying the essential data confidentiality and safety for the common and public databases also enhances and improves to the major barriers in accepting and approving Blockchain. The worldwide business is now exploring more and trying to learn the concept to the fullest. But the major challenge is to know the market and look for the other sectors that are getting a high momentum in order to achieve the success. The business world has tried to use many technologies, but they are quite satisfied in using the blockchain technology that will later introduce the applications of blockchain technology. The applications of blockchain have reduced the risks related to tampering, frauds, and cybercrimes. The technology has become so effective in the industries that it highly secure due to decentralized and cryptographic protocols. It will make the whole process smooth with the direct transactions that remove the intermediary and overheads costs and with the clearer processes with a proper tracking and proper record creation.

4.7. CONCLUSION The blockchain technology is used when the block stores the new data, and it doesn’t mean that the new data will replace the old or existing data, but

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it works to contain various blocks that threads together. There are various ways for adding the blocks into the blockchain. There is a need for transaction at the time of purchasing or selling the product. There is one example for Amazon purchase, and after quickly ticking through multiple counters prods, the person can make better decision for purchasing the product It is necessary that the transaction gets verified at the time of purchasing the product and sometimes because of server slow or server down, it must get failed with these reasons but failed transaction should also become as a record for the parties. Earlier, people use to write the entries which are difficult to handle the calculations, and they may commit mistake in the entries, or there may be stolen of registers or getting lost. It has also become time-consuming because the entries need to be done manually, but now the job is left to a computer system or a network with the blockchain technology. This has become the easiest way with the blockchain for doing transactions as these networks are generally contains of thousand networks extend across the world. The network of computer will give surety that the transaction has been successful after the purchase and later it shows the details of the purchase like amount, participants, and transaction time, and it will happen immediately, and many times it will be successful and effective. With Blockchain, all the transactions must be kept in a block. When the transaction is made, and it gets verified, then it gives the message in the form of text or show some signal like it gets the green light. The technology has been so accurate that it did not miss details in the transaction including the amount and the digital signature which can be done with the blockchain technology and it has been saved under the records. In order to avoid confusion with these blocks, the function works that transforms the input of letters and numbers into an encrypted output of a fixed length called as blockchain hash. The transaction should get verified one by one if the criteria are different for the process or the person may select multiple items and make all the payments of all the purchases at one time only. It varies from process to process or person to person, and later it generated an ID if the transaction gets failed, and the money gets stuck. Nowadays, it is not difficult to understand the whole process, and every time there is some new block that will develop which is required by the public and every time, and they continuously make transactions at the time

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sending money by purchasing the product. Generally, the payments are required in the transactions, and this will show the actual time and when it will be done, and it has been said that it will be vary from process to process. The person has the right to outlook the contents of the blockchain network and the users also choose to attach their computers to the blockchain network. It has become easy to copy the blockchain with the other computer systems, and it can be updated automatically where the new block will be created. For Example, in a Facebook, the person will like the page of news feed than they will get the notifications or live updates for that particular page. The person who is majorly connected with the technology can relate that the computer in the blockchain network has its own copy of the blockchain. It states that there are millions of copies in the case of Bitcoin blockchain. But every copy of the blockchain is equal and distributing this information across a system of computers makes the information harder to operate. There is not even a final or single explanation of events that can be operated with blockchain. In its place, a hacker would want to operate all copy of the blockchain on the system. There is some personal information for the user, so the other people do not have the access because it is been protected by the username password or digital signature and the transactions with the blockchain are not totally anonymous. The blockchain technology has solved the problems because it has been considered as the trusty and secured in various ways like the original blocks will always store chronologically and linearly. As a result, they are always new blocks that have been added to the end of blockchain. It has been said earlier that every new block in the blockchain are able to store and record the data for mainly for financial transactions. It has been observed that the blockchain is becoming a reliable way for keeping the data secure as well as safe for any kinds of transactions. The blockchain technology is useful in many ways including votes for a candidate, stops in the supply chain, property exchanges that all helps in storing the data. There are thousands of companies, and the people are working on the thousands of computer network systems while executing blockchain into the process of their business operations. According to the survey, the data of many countries are now being dependent on the blockchain technology, and

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the countries are developing because it improving the time efficiency and the people just must give input to these thousands of computers. Although, the companies need to invest millions or more in the blockchain in the future. Blockchain technology is not as complicated as it looks like because it has been performed by the various industries just the transactions on the blockchain network needs to be get cleared from the other computer system and this technology automatically by just giving the input. So, there are not many efforts that have been needed by the human beings as humans can commit some mistake or do some error which is able to destroy the whole process. For all its difficulty and complication, blockchain’s possible as a distributed and recognized procedure and method of record-keeping is nearly without boundary. From better and superior user secrecy and sensitive security, to fewer errors and minor processing fees, blockchain technology might view all the applications. Suppliers can use blockchain to record the origins of materials that they have purchased. This would allow companies to verify the authenticity of their products, along with health and ethics labels like “Organic,” “Local,” and “Fair Trade.” Typically, consumers pay a bank to verify a transaction, a notary to sign a document, or a minister to perform a marriage. Blockchain eliminates the need for third-party verification and, with it, their associated costs. Business owners incur a small fee whenever they accept payments using credit cards, for example, because banks must process those transactions. Bitcoin, on the other hand, does not have a central authority and has virtually no transaction fees. Blockchain does not store any of its information in a central location. Instead, the blockchain is copied and spread across a network of computers. Whenever a new block is added to the blockchain, every computer on the network updates its blockchain to reflect the change. By spreading that information across a network, rather than storing it in one central database, blockchain becomes more difficult to tamper with. If a copy of the blockchain fell into the hands of a hacker, only a single copy of information, rather than the entire network, would be compromised. As a result, the trusted entities are more suitable for keeping the records and storing all the information, and it can be exploited with their own use and profits. The user may become the primary source that can be converted and became the product chief to rent in search for performance with these entities.

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REFERENCES 1.

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Blockgeeks., (n.d.). What is Blockchain Technology? A Step-by-Step Guide for Beginners. [online] Available at: https://blockgeeks.com/ guides/what-is-blockchain-technology/ (Accessed on 7 May 2019). Fortney, L., (2019). Blockchain, Explained. [online] Investopedia. Available at: https://www.investopedia.com/terms/b/blockchain.asp (Accessed on 7 May 2019). Happiest Minds, (n.d.). What is Blockchain Technology | Blockchain Applications. [online] Available at: https://www.happiestminds.com/ Insights/blockchain/ (Accessed on 7 May 2019). Intellipaat Blog, (2018). What is Blockchain Technology – Blockchain Definition & Application. [online] Available at: https://intellipaat.com/ blog/what-is-blockchain-technology/ (Accessed on 7 May 2019). Iyer, K., & Kumar, V., (2018). Blockchain, Bitcoin and Cryptocurrency Explained. [online] Economic and political weekly. Available at: https://www.epw.in/engage/article/block-chain-evolution-moneythrough-cryptocurrency (Accessed on 7 May 2019).

Chapter 5

Mining the Exchange Process

CONTENTS 5.1. Introduction .................................................................................... 120 5.2. Need of Mining of Alternate Currency ............................................ 122 5.3. Mining of Cryptocurrencies ............................................................ 126 5.4. What Is The Exchange Process of The Alternate Currencies? ............ 129 5.5. Platforms For Exchange of Alternate Currencies (Figure 5.5) ............ 134 5.6. Challenges In Exchange of Cryptocurrencies ................................... 137 5.7. Conclusion ..................................................................................... 142 References ............................................................................................. 145

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There are many new trends that are being introduced for the processes for the mining and the exchange processes of the cryptocurrencies. Mining of the cryptocurrencies is very important as it helps in creating a secure network that would help in the successful and viable transactions of the cryptocurrencies. Similarly, there are many different platforms that are being used for the exchange process of the cryptocurrencies and the digital currencies. The processes of mining and exchange are very important for the proper functionality of the whole virtual market. There are many vital elements of the cryptocurrency market that are yet to be addressed and discussed. Besides these aspects, there are certain challenges like the vulnerability to hacking and the issue of liquidity that pose a serious threat on the proper development of a roadmap for the virtual market and the processes of the cryptocurrencies.

5.1. INTRODUCTION The details of the transactions that are being conducted within the cryptocurrency have their roots in the data blocks. All the data blocks are interconnected to each other. This interconnection of the blocks constitutes a blockchain. For the cryptocurrency transactions to be verifies, these data blocks are required to be examined as faster as it is possible. The issuers of the digital currency are aware of the fact that they don’t have the power of procession to do this task on their own. As a result of this, miners originated (Figure 5.1).

Figure 5.1: Mining is the first step for the setting up of the market of cryptocurrency.

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Source: https://farm2.staticflickr.com/1806/41068354640_5b7f834662_b. jpg Miners are basically the investors. Their task is to give computer space and the time to sorting through the data blocks. At the time when their process of mining hit the right hash, there is a composite mathematical formula puzzle generated. This formula helps in performing many tasks. It not only helps in the verification of transactions, but it also supports the generation of the new currency. Miners give their solutions to the issuer of the currency. The miners are also awarded with some certain number of coins when the verification of their work and hash is done. Miners also helped in the verification of the transactions. They are also paid with a part of the fees that are connected to the transactions in which the miners have helped in the verification. Therefore, there consists a scheme of dual-layer for the reward. This kind of mining and its outcome rewards is known as proof of work system. This term means that the person does the work and is paid according to the work. Bitcoin, Litecoin, and many other digital currencies also use this proof of work. Other than proof of work there also consists other scheme which is known as proof of stake. Proof of stake method cannot be used alone. Indeed, it is used with the proof of work system. The investors are rewarded through the mining process in addition to the proof of work income in the procedure of proof for stake. Proof of work income is the amount that is relative to the amount the miner has already financed in the currency. Most of the digital currencies have mintage caps. Mintage caps means when some specific numbers of coins are mined or developed than the earning coins that are present in the process of mining start losing their value and also, becomes less common. At that point of time, the distribution of the fees through transactions become the major incentives for the miners A this time it is also projected that the sharing part of the transaction fee is enough alone for making the mining process worth the time and worry. There exists a digital currency income that is created through the process of mining. In case of individual miners, the process of mining can take a lot of time. It can also produce low rate of return comparatively. It is to be noted that it is not a get-rich-scheme. Mining process is used by all the cryptocurrencies. It is used to check the validity of the transactions done and also, helps in producing new coins.

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5.2. NEED OF MINING OF ALTERNATE CURRENCY There are two shortcomings. One of the limitations is the absence of scalability. This is all about providing the elasticity and the capacity to work as a system of payment irrespective of number of transactions that are done. The capacity is required to be small enough to create fess for the user. The low capacity also helps in maintaining the incentives for the self-centered bookkeepers. During the peak times, the limits on the capacity affect it. It obstructs the system through congestion. The finding of the accurate capacity is a very difficult and important task. The capacity that is selected at the beginning is doubtful to get it right (Figure 5.2).

Figure 5.2: There is an urgent need to mine the digital currencies.

Source: https://cdn.pixabay.com/photo/2018/05/23/18/00/cryptocurrency-3424624_960_720.jpg And the other drawback is the absence of finality of the payment. It means that the payment which is noted or recorded in the record does not provide assurance that is the final and unchanged payment. It is to be noted that in cryptocurrencies the contract or agreement among the bookkeepers is counted as the truth or the fact. The payment is deleted if the history is redrafted. The histories of the payments are linked through the system. This history is then extracted which gives rise to a new twist in the risk of the payments. In this, the canceled payments falls through the system.

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5.2.1. Economics of Money Some anthropologists gave the guesswork that during early human societies, the goods were given without the money. In spite, the goods were provided by promising to give back the favor in the coming times. In this background, the money is seen as a record-keeping device. The concept of carrying a shared ledger or record by all the people is not practical. But the tormenting question is whether the computing and technology is capable of rescuing the human race from the conventional method of record-keeping. Also, it is to be evaluated whether the technology can accomplish the vision of shared ledger or record of the transactions that have been completed in the past. The practical possibility of the selling point of the cryptocurrencies is defined by their characteristics of distribution agreements. Though the mission for the decentralized consensus clashes with the finances of the money. It turns out. The essential part is the incentives. The bookkeepers are self-centered. Depending on the self-centered bookkeepers brings too many obstacles or constraints. This also cuts many of the corners for the outcome arrangement to serve as a monetary system. In order to understand this point, there is the requirement to research deeper into the ecosystem of the cryptocurrencies.

5.2.2. Blockchain Ecosystem There are two main groups of participants that are including in the functioning of the blockchain-based cryptocurrency. There come the miners who are appointed as the bookkeepers. Miners work in maintaining the structure of the system. They do it by updating the list of the transactions done. On the other hands, there are some users that make and collect the payments. There are basically two groups of people. One is miner, and the other is user. Both the user and the miner are dependent on each other. The users require the help from the miner in recording the transactions in the record. Similarly, the miners require the users to use the services and make it their worthwhile and to play the role of a bookkeeper. In cryptocurrencies, the miners make use of computing power to answer the mathematical puzzles. They compete in resolving such puzzles. The answer to the puzzle helps in choosing a miner to expose the pool of transactions that are in the queue waiting to be processed. No beneficial purpose is serves because of the solutions of the puzzle. It is to be noted

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that is just a device of randomization. Also, it is immensely expensive in the terms of usage of energy. The major concern is that the miners are self-centered. They are just working for the sake of money. At the present time, the miners are awarded on each block. They are paid on the top of fees that are paid by the users. But then again, the blocks that are rewarded to the miners are phased out over by the time. In the extensive run, the fees paid by the users will have to withstand the system. The user pays the fees in order to be at the top of the waiting line. It is the responsibility of the miner to pick and select among all the transactions and include into the records. So, in order to include the transactions in the ledger, the users offer a high fee to the miner. The proposal of high fee by the user shows the possibility of the transaction to be entered in the record or ledger.

5.2.3. Scalability of Money Money has worth because of the reason that people use it as money. Money is just useless without the users. In spite of a piece of paper with a face on it or a digital token, money is a valuable and useful token. The money is accepted as the payments in the hope that it will be accepted by the other people. Specifically, there is no involvement of the promise of others in the token. But the faith in the money appears as property of the community. With the cryptocurrencies, the case is opposite as that of the conventional money. It has been noted that in order to maintain the incentives for the selfcentered bookkeepers, it requires small capacity to withstand the fees of the users. The essential factor of such system is congestion. Over the time, there has been a creation of different cryptocurrencies. There exist numerous thousands of cryptocurrencies at the latest count, and also, the latest ones are being made at every time. This is basically not the way of expectation of money to the work. There do exist the currencies with no users. But the new platforms of the cryptocurrencies are overshadowed by already existing cryptocurrencies. This is one of the major reasons that why the cryptocurrency failed the economic test for the money.

5.2.4. Finality Finality means the unchanged or unconditional nature of a payment.

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Finality is the foundation of a well working system of the payment and the conventional economic. Eventually, by the clearance on the balance sheet of the central’s bank, the system accomplishes finality. Final is of great importance when the payments are dependent on each other. It is to be noted that if the three is the assurance of the finality, then the buyer can do the payment for the purchase on getting the proceeds of a sale. It is possible that there are postponements in the payments. There has been no circumstance in which the buyer has paid the money for something when they have no funds. Finality is an unresolved matter in case of cryptocurrencies. This is because of the reason that the fundamental facts and the history are modeled as a matter of agreement among all miners. Also, the miners have their individual incentives. In a distributed setting, the payments are considered as valid according to what the bookkeeper says. The mind of the bookkeeper can be changed at any period of the time. A payment that is noted in the record is not just the end of the matter. The payment can be erased at any time and also, the history can be rephrased later on. There is a game going on between the miners similarly to the game going on between the users. The miners are the people who are self-centered. And often the miners perform to further their own ends. For example, if the alliance of miners colludes to hold up the latest block of the transactions to another block that is further up the chain. Occasionally, both of the branches can live. And also, they create two dissimilar versions of the cryptocurrency. This process is known as hard fork. There is some time when one of the branches expires. As a result of this, all the transactions that are documented in that branch will no longer be lawful or effective. According to the principle of blockchain, the miners are the people who are not able to collude. Practically, it can be made a true possibility if the high-intensity nature of the mining pools can do the collision by the packs of the miners. This is essential in case of the cryptocurrencies which are known less that means where the population of the miners is minor. In case of Bitcoin, there are plenty of miners. But the mining pools are highly intense in nature. In this, the three mining pools have more than fifty percent of the power of the computer. The inclusion in the latest block means that there is a high prospect of finality. At all the time the system functions as

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it should work and also, the payments that are done go through. On the other hand, it is at no time certain in the way that a conventional monetary system would confirm. It is to be noted that the high possibility of the finality can never act as a substitute for the finality itself.

5.3. MINING OF CRYPTOCURRENCIES The cryptocurrencies have been gently increasing in the popularity from the past few years. The larger number of people are purchasing and selling the cryptocurrencies. Gradually with the time, the cryptocurrencies have become a global phenomenon. This resulted in increasing a greater number of people getting into this game of cryptocurrencies. The fact is that the invention of the cryptocurrencies is not anything related to that of regular money. There exists no central authority that produces and legitimates new notes. The cryptocurrencies are created by the procedure which is called as mining.

5.3.1. Cryptocurrency Mining and the Blockchain In order to understand the procedure of cryptocurrency mining, it is important to be aware of the blockchain. Practically, each, and every cryptocurrency is supported by the technology called blockchain. Blockchain is the public record of all the transactions that has been carried out in the cryptocurrency. All the transactions that are carried out are collected into the blocks. These blocks are the proof to confirm that they are made legal by the miners who perform cryptocurrency mining. This confirms if the similar coin has not been expended again earlier to the clearance of the transaction. And also, the input and the result expenditure tally. Later on, the following successive transaction block is linked to it. This is the procedure of the formation of the cryptocurrencies and the creation of the crypto coins.

5.3.2. Mining New Blocks There is absence of central authority or central bank. Therefore, there should be a proper way of collecting every transaction that is carried out with the cryptocurrency in order to produce a new block. The network nodes that perform this task are known as dubbed miners. Each time the number of transactions is put together into the block; these get attached to the blockchain. The person who affixes the block gets awarded with some of the cryptocurrency.

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In order to preserve the reduction of currency by the miners constructing lot of blocks, the task of doing this becomes difficult to conduct. This is accomplished by making the miners to resolve the complex mathematical problems. And this is known as proof of work (Figure 5.3).

Figure 5.3: Mining of the new blocks paves the way for better transactions.

Source: https://farm2.staticflickr.com/1762/28005484557_eb75c37c4d_b. jpg

5.3.3. Calculating Hashes Cryptographic hash helps in achieving the requirements to efficiently create a block. In order to effectively make a block, it must be done with the help of cryptographic hash that satisfies certain requirements. The only practical way to reach at a hash matching the accurate criteria is to simply analyze as many as possible and need to pause till the matching hash is received. The new block is created when there is the formation of right hash. The miner who helped in getting the right hash is awarded with some units of cryptocurrency. For example, there is one competition where number of people is participating. The people have to guess the weight of the cake. The person

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who is the first to submit the correct answer wins the competition. The person who makes guesses the weigh at the faster rate have the more chances to winning the competition.

5.3.4. Cryptocurrency Mining Limits The mining limits mean that the miners are competing against each other in order to analyze as many hashes as possible. All the miners compete in the belief of getting the first on among all to hit the correct one. After this, the block is formed, and they get their cryptocurrency payout. However, with the increasing level of difficulty of calculating the hashes, the mining of new blocks of Bitcoins becomes even harder. Theoretically, this guarantees that the rate at which the new blocks are formed stable. There are many cryptocurrencies that exists, and they also have a fixed limit on the number of units that can never be produced. For instance, there will only be twenty-one billion of Bitcoins all over the world. Afterward, the mining of a new block will not create any Bitcoins at all.

5.3.5. Cryptocurrency Mining Requirements Even though mining one’s own cryptocurrencies was possible a long time ago. And this was possible even with the help of a standard PC. But now, this is no longer possible. The quality and quantity of hardware that is required for the efficient mining should be checked. The more people have started the mining of cryptocurrencies, and the more is the hardware required in the volume. This is the kind of requirement leap that has been seen in the trend of cryptocurrency. Earlier a rationally powerful processor was required. But now, this is no longer required. In modern times, the high-end Graphics Processing Units and chips designed specifically for crypto mining are used. At the present times, the cost of the appropriate hardware would be around one thousand euro. It is used to mine the most recent cryptocurrencies with any achievement. In the meantime, the consumption of the energy is substantial. There is the requirement to keep a watch on the increasing costs while running the machines on every day of the week. Many of the miners will spend their much of the earnings from mining to sustain and run the equipment’s. Bitcoin hype is more or less fully settled in the broader public consciousness. Therefore, the organizations have capitalized extensive

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sums into it. This efficiently developed the cryptocurrency mining. There are larger warehouses that are functioning for the single goal of mining new units of Bitcoin, Ether, Litecoin, and it continued to become the new normal. Their warehouses are packed to the edge with top to bottom holders of luxurious graphics cards. The network of Bitcoin process 5.5 quintillion of hashes per second. This means that if there is absence of apparatus that are capable of processing a huge quantity of the calculations in a very short period of time than the possibility of being able to compete with the operations that are more industrialized in comparison to other are very minute. Due to this reason the miners on the other side frequently band together and pool the resources to increase the probabilities of gaining profit from the cryptocurrency mining games. In mining games, the mining pools are made, and the power is distributed among all.

5.4. WHAT IS THE EXCHANGE PROCESS OF THE ALTERNATE CURRENCIES? The cryptocurrency exchanges are the platforms that are based on virtual networks. In these kinds of networks, any user can come on the platform and exchange and inter-change their digital asset or the currency that they own. The conversion or the withdrawal of the digital asset is done on the market rate of the currency. The market value of the given asset determines the rate of the digital currency and the cost of the digital asset present on the online platform. At present moment of time, some of the most famous exchange platforms are Binance and GDAX. This is very important to understand that the platforms which offer the facility of digital cryptocurrency are different from the existing cryptocurrency wallets or the brokerages that the digital wallets offer. There is a basic difference between the cryptocurrency exchange platforms and the cryptocurrency wallets that offer the brokerages. These cryptocurrency wallets and wallets brokerages allows the users to buy or sell a small range of their popular digital assets. Major digital assets like Bitcoin and Ethereum are generally traded on these digital exchange platforms. The platforms of the cryptocurrency exchanges should not be confused with the presence of cryptocurrency wallets or the brokerages that is offered by the other wallets. This is a vital role. Usually, the cryptocurrency wallets and the other wallets brokerages permit to purchase and sale the

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small number of popular digital assets. These popular assets are Bitcoin and Ethereum. These assets can be sent to some diverse exchange to trade for some other digital assets like altcoins. Generally, most of the exchanges of cryptocurrency bound their users to only do the trading of digital assets for digital assets. But there were few cryptocurrency exchanges that permit to trade of fiat currencies like US Dollars for cryptocurrencies. There is an exchange which agrees to take funds in the form of USD, JPY, CAD, and GBP. This is known as Kraken. It also supports trades with Monero, Ripple, and Litecoin and also, Bitcoin, and Ethereum.

5.4.1. Cryptocurrency Exchanges and Cryptocurrency Wallets In order to invest the fiat currency like US Dollars into the crypto asset, the user is required to set up an online account. At the present time, the most famous and the secure method the user can use is Coinbase. In Coinbase, one person can purchase and hold the most famous and useful cryptocurrencies. The most famous and useful cryptocurrencies is mainly Bitcoin and Ethereum. Once the wallet is created, the user has the capability to send and receive the coins to the other wallets. This can be done through the wallet’s address (Figure 5.4).

Figure 5.4: Wallets of cryptocurrencies allow holding of the digital currencies as assets.

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Source:https://cdn.pixabay.com/photo/2018/01/13/18/55/leath er-3080553_960_720.jpg If in case the wallet does not permit to purchase and sell some cryptocurrencies. This mainly includes altcoins like Ripple and Stellar. In such situation, the user is required to set up a cryptocurrency exchange account on other platform like Binance. After the creation of the account on the cryptocurrency exchange, the user is required to send the coin to that account in order to start the trading. The user has to send the Bitcoin or Ethereum or the any kind of medium the crypto exchange uses from the crypto wallet. It is to be sent to the corresponding cryptocurrency address on the trading account. Once the user has the coins for the trading, the coins can now be used to exchange for coins like Monero and Ethos. However, if the user wants to withdraw the cash from these coins for profit, the procedure of withdrawal is very complicated. This is because of the reason that publicly there is absence of addresses or the wallets availability for the user but yet that provide the storage as well as the fiat gateway for most of the Altcoins. Hence, there is the requirement to trade the cryptocurrency like altcoins for the other basic coins like Ethereum. After this, the basic coins are sent from the cryptocurrency exchange account to the address that is mentioned on the wallet. Now the cash can be withdrawn with the help of these coins. Such procedures have an additional layer of legal difficulties. Thus, the readers are required to read about cryptocurrency laws. They should educate themselves about these laws in their local jurisdiction before the trade of the cryptocurrencies. There are some countries in the world that have accepted cryptocurrencies as property subject to capital profit taxes. These countries are United States of America. On the other hand, the other countries make the procurement and selling of suck kind of cryptocurrencies completely unlawful.

5.4.2. Cryptocurrency Exchanges and Issues of Custody All the financial intermediaries that were used for exchange before the platform for cryptocurrencies have their shortcomings. Most of the trading of the digital assets happens on what is known as centralized exchanges, or it can also be called as CEX. Such kind of exchanges should be handled with attention.

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The reason of handling it with the carefulness is that these exchanges need custody of the digital assets in order to conduct the trading. Such exchanges have great implications about the procurement and selling of altcoins. The trading of the cryptocurrencies like altcoin on the exchanges of the cryptocurrencies indicates the characteristic lack of custody over the new assets. The giving up of the custody also makes some meaning. Just like in any of the institutes of finance the digital assets are held by the exchanges for some variable span of time. This is done in the order to accumulate interest. The Bitcoin gained the traction in the year 2009, surfacing the ways for a decentralized and financial economy. Since this year, the problems concerning custody and centralization have become one of the major problems of concern for the platform like blockchain. These issues were resolved day by day. As the new technologies and performant digital applications helped in bring about a truthful, decentralized digital economy to the head of the society.

5.4.3. Self-Custody at Ethos and the Ethos Universal Wallet There are problems in regard to the centralized transmission of custody. Ethos work all day in order to resolve the problems related to the transfer of the custody. Users were benefited with the publication of the Ethos Universal Wallet. In this, the users were provided with the answer to cryptocurrency exchange problems by making a platform that permits the users to keep the self-custody of all their digital assets. It means that if any user is having an altcoin on a cryptocurrency exchange platform that the user needs to be protected. So, it helps the user in creating an Ethos Universal Wallet to send the coins to the wallet’s address and preserve custody of all the digital assets. Also, the Ethos Universal Wallet helps the users in receiving the coin form any other wallet. The user can securely stock multiple kinds of the cryptocurrencies in a single place. The Ethos Universal Wallets also uses the Smart Key technologies. This permits the users to have access to all their wallets through a single key. And, also the users can send the cryptocurrencies in all their wallets with the help of this key. In the upcoming times, the Ethos Universal Wallets will be including a fiat gateway inside the application. This in return will assist the user in purchasing and selling the cryptocurrencies on the platform.

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5.4.4. Types of Exchanges “Traditional” Cryptocurrency Exchanges: These are the exchanges that are based on the baseline of the conventional stock exchanges. In these kinds of exchanges, the functionality takes place just like the traditional stock exchange. Here the buyers and the sellers conduct the trades that are based on the current market price of cryptocurrencies. Also, the payment or the brokerage of the middlemen is done here. These are the type of trading platforms which generally levy a fee for every single transaction. Some of these types of exchanges deal only in cryptocurrency. On the other hand, some of the other platforms for the exchanges allow their users to trade fiat currencies like the U.S. dollar for cryptocurrencies like Bitcoin. Coinbase’s GDAX. Coinbase Pro and Kraken are some of the examples of the traditional type of exchange. There are some exchanges that are being run by third parties. In this type, a middle man or a broker is present who extends their support and helps in correcting some problems. Then, there are Decentralized Exchanges or DEXs that mimic or copy the functionality of the traditional exchanges like IDEX. In such kind of exchange platforms, the trading is based on smart contracts. Here, the exchange and the trading are not enabled with the help of a centralized third party’s software Cryptocurrency Brokers: Cryptocurrency brokers are the website-based exchanges that are like the currency exchange facilities at an airport. This kind of exchange platforms allow the customers to buy and sell cryptocurrencies at a price that has been pre-decided by the broker. Usually, the price set by the broker is the market price plus a small amount that is paid as brokerage. Direct Trading Platforms: Direct Trading platforms are those platforms which offer a direct peer-to-peer trading between buyers and sellers. Direct trading platforms of offer a special privilege to their users. This type of trading platforms does not use any fixed market price. The sellers here set their own exchange rate, and buyers find sellers through the platform. Then they perform an Over the Counter (OTC) Exchange. There is another way to conduct the trade where the buyer denotes the rates, they are willing to buy for, and the platform matches buyers and sellers. Many Decentralized Exchanges function in the way that is mentioned above. Although, some of them are closer to traditional exchanges in their functionality. This is the reason why they are listed in the first category.

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Cryptocurrency Funds: Cryptocurrency Funds are pools there is being professionally managed cryptocurrency assets. These funds allow the public buy and hold cryptocurrency with the help of the fund. One such example of the fund is GBTC. By using a cryptocurrency fund, a user can invest in cryptocurrency without having the need to purchase or store the cryptocurrency directly. As a trade-off, the user cannot use the cryptocurrency in the fund as money. These holdings are strictly kept only for the purpose of investment.

5.5. PLATFORMS FOR EXCHANGE OF ALTERNATE CURRENCIES (FIGURE 5.5)

Figure 5.5: Platforms for the exchanges of the cryptocurrencies. Source: https://farm5.staticflickr.com/4771/25897945187_8494041f41_b.jpg

1.

Bitbuy.ca: It is a Canadian owned digital currency platform. This is also operated from Canada itself. Initially, this company was founded as InstaBT in 2013. The aim and objective of the company was to create a convenient, reliable, trustworthy, and secure access to primary digital currencies like Bitcoin and other digital currencies. These exchange platforms are based on best experience of the customer. The best consumer service, ease of using the platform, and fast turnaround times for the processes of deposits and withdrawals are pillars of Bitbuy.ca platform.

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This platform caters and provides all the services to the beginners as well as experienced traders. As this platform is based in Canada, this platform is one of fastest growing buy and sells platforms for the cryptocurrencies in Canada. A great choice for users looking to buy and hold crypto, or users looking for a reliable on-ramp to turn their fiat into crypto quickly and easily. There are many benefits of this exchange platform. Apart from its great customer service, this platform provides fast registration and verification methods for a hassle-free registration on the platform. Similarly, quick processing of the Canadian Currency (CAD) deposits and withdrawals and low transaction fees has made it a first choice for the users, especially in Canada. On the other hand, this cryptocurrency exchange platform is only available for the usage of the Canadian citizens. Coinbase: This platform has a backing of the trusted investors from all over the world. This platform is used by millions of customers all around the world. Coinbase is one of the most popular and well-known brokers and trading platforms for the cryptocurrency exchange in the world. The Coinbase platform has made it easy for its members and users to securely buy, use, stack, and trade digital currency. On this platform, the users can buy major cryptocurrencies like Bitcoins, Ether, and now Litecoin from Coinbase. These purchases can also be done through a digital wallet that is available on mobile platforms of Android & iPhone. 2.

Also, these transactions can be conducted through exchange with other users on the Global Digital Asset Exchange (GDAX) subsidiary of the company. The GDAX currently operates in the countries like US, Europe, UK, Canada, Australia, and Singapore. These countries have already made their mark in the field of cryptocurrency. Till date, the GDAX does not charge or levy any kind of transfer or transaction fees for moving funds between the Coinbase account of the user and the GDAX account. In the current scenario, the selection of tradable currencies totally depends on the country of the residence of the user. Coinbase has a good reputation for being one of the best cryptocurrency exchange platforms. This good reputation has been built up by providing the security and reasonable fees for the transactions that are being conducted on this platform. Also, this platform is beginner friendly and allows the beginner to gain an access of the whole transaction process. Also, the currency or the assets stored on this platform are covered by the Coinbase insurance.

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But there are many aspects of the Coinbase that require an upliftment for the betterment of the process. The Customer support service that is offered is one of the main issues that need to be corrected. Apart from this, limited payment methods and access that is only supported only in some of the countries. The non-uniform rollout of services that are being offered worldwide and the GDAX accessible only for the technical traders are some other issues that are required to be cleared out. Coinsquare: The Coinsquare trading platform is built on the same technology that is being used in the New York Stock Exchange. The servers of the Coinsquare are created in such a way that they deliver safe and secure trades and exchanges because the creators of this server believe that the security of the money of the user is paramount. The members of this server understand that the user satisfaction is very important for the smooth functioning of the server. The system of the Coinsquare is totally proprietary. It has been tested for the heavy loads and stressed conditions and DDoS tested. In all these tests, this server has never resulted in even the loss of a single coin. The server authority also maintains a ledger or a record book to have a knowledge in the interest of ensuring that the full knowledge of each transaction is kept, and it is known that where every coin is transacted or stored at that moment of time. Whether the transacted asset is Canadian or Ethereum, the track record is maintained for the security of the money of the users. 3.

Good security is one of the main benefits of trading on this platform. Apart from this, reasonable transaction fees and an interface that is beginner friendly helps the Coinsquare in being chosen above the other platforms for the exchange of the cryptocurrency. On the other hand, the customer support of this platform needs to be improved. The access should be supported in many other countries, and the non-uniform roll-out of the services should be eradicated to make it more user-friendly. 4.

Kraken: It is a platform for the exchange of the cryptocurrency that was created and established in the year 2011. Kraken is the largest Bitcoin exchange in euro volume and liquidity. Also, it is a partner in the first-ever bank that deals in cryptocurrency. The trading platform of Kraken allows the user to buy and sell Bitcoins. Also, it is very busy to trade between Bitcoins and the

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fiat currency of the Euros, US Dollars, Canadian Dollars, British Pounds and Japanese Yen. On this platform, this is possible to trade some other digital currencies like Ethereum, Monero, Ethereum Classic, Augur REP tokens, ICONOMI, Zcash, Litecoin, Dogecoin, Ripple, and Stellar/Lumens. Kraken allows margin trading for the experienced users on the platform. Apart from this, a host of different trading features are available on this platform. Out of all the trading platforms, Kraken is the most chosen platform by more experienced traders. The most beneficial part of this exchange platform is the decent exchange rates and the low transaction fees that are being levied on such transactions. Also, the minimal deposit fees make it easy for the customers to easily access and try this exchange platform. This platform features the rich and extends the great user support, and it is supported worldwide. The biggest drawback is the limited payment method that is present on the exchange method. Apart from this, it is also not suitable for beginners. Another major issue that this platform faces is the presence of a very unintuitive user interface.

5.6. CHALLENGES IN EXCHANGE OF CRYPTOCURRENCIES In present world, the evolving technologies of cryptocurrencies and blockchain technologies are being predicted as the biggest obstacle or the challenge in the current financial system. These systems also promise to fight the corporate red tape and helps in creating a more transparent and viable world economy. Also, it helps in increasing the financial inclusion of the countries all over the world. Although all of the above mentioned is true, it is not valid at every point of time. There are many conditions and situations that the cryptocurrencies also face as challenges (Figure 5.6).

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Figure 5.6: There are many challenges in the roadmap of the exchange of cryptocurrencies. S o u r c e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 8 / 0 9 / 0 5 / 1 8 / 2 1 / B i t coin-3656764_960_720.jpg

The presence of different cryptocurrency exchange platforms can offer different types of cryptocurrencies and have different set of conditions for all of them. Each cryptocurrency has a different kind of policy, different payment methods and variable transaction fees for them at a single platform. These exchanges also differ on the aspects of security, ease of user accessibility, methodology, and infrastructure design. All of the above-mentioned factors play a significant role in the choice of the exchange process and platform by the user. There have discussions and forums going on that help these cryptocurrencies and digital currencies transform into a more stable and viable option for the financial market. This economic system should be made into a more transparent and viable system so that the users have a full trust on the system. There are many issue and challenges that need to be addressed. There are also many challenges that are required to be tackled with proper policies. Here are some of the issues and concerns that are needed to be faced to take the level of market of digital currencies and cryptocurrencies on a different level.

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5.6.1. Security 0The biggest and the most prominent problem that the market of cryptocurrency is facing is the absence of a proper security system. In the modern times, when there is much news of hackings and server breaches, it is very important to understand the need of a rock-solid security system so that the transactions may be done without any hassle. Also, the users of the cryptocurrencies are putting up the demands for a more protective security system for their assets and data (Figure 5.7).

Figure 5.7: Security is the important aspect for digital currencies. S o u r c e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 7 / 0 7 / 1 3 / 0 8 / 4 5 / m o n ey-2499719_960_720.jpg

It is very significant to remember that with the growth of the technology in the modern times, the access and the ease of the hackers performing their crime have also increased. Exchanges are essentially so prone to the virtual robberies and hackings because these transactions take place at the central system. It is important to understand that more the centralized the risk is, more is the option of decentralization will be considered. Decentralization is such a viable option in the pursuit for maximum security that it is being viewed as the only option for the prevention of the financial hackings. Security of the cryptocurrencies is indeed an urgent matter that needs to be addressed and tackled before it is too late. According to Coin Desk, each day, around three million of US dollars are stolen from exchange platforms for the cryptocurrencies. The amount of cryptocurrency that was taken in the year 2018 has increased around thirteen times as compared to the year 2017.

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This infers that the amount of around three million of US Dollars in the form of crypto assets is being stolen every day.

5.6.2. Transparency Indeed, it is a well-established fact that the majority of ICOs end up unsuccessful. It is also known that some of the exchanges are even fraudulent. Moreover, there are many over-expensive crypto projects that often make a case for themselves. These over-expensive crypto-projects claim that they are decentralized. As a matter of fact, the data from Token Analyst for Yahoo Finance revealed that nearly eighty-percent of the top fifty crypto coins are held by the top twenty crypto wallets. The level of transparency resembles much like in the traditional economy. In cryptocurrencies, the power dynamics also highlight the negotiations and collaborations that are set in the crypto sphere. Apart from this, the gradations of marketing strategies can mislead users and investors. The absence of the transparency, credibility, and the professionalism from renowned organizations can be toxic for the benefits of digital currencies. Also, this can lead in undermining the strength and influence of the adoption of the emerging technologies like Blockchain and Bitcoins in various other industries beyond finance. Hardcore blockchain followers have called for an end to sketchy practices in the financial system and market structures. This will help in promoting widespread professionalism and the practice of ethical standards that will lead to a better transparency.

5.6.3. Credibility The campaign of initial coin offerings (ICOs) and giveaways are a great way to attract the investors and the establish the credibility of the exchange platform. But some these schemes have resulted in the scam and fraudulent activities on some of the new pages. The exchanges that are taking place on these new platforms need to be done very carefully and within the deadlines. It is important to list only those crypto coins which are viable and reliable to ensure that the right transaction has been done.

5.6.4. Trading Fees The presence of different transaction fees on different platforms is one of the major challenges that have risen in the recent trends. There are many exchange platforms that charge a single flat fee, for example, 0.2% of the

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transaction value on the trades and transactions that are being done on their platform. On the other hand, there are many exchanges that have split their trading fees into two separate fees: the maker fee and the taker fee.

5.6.5. Liquidity Liquidity is an important element for any financial market. Lack of the liquidity forces the creation of an imbalanced environment. This leads to the downward spiral collapse of the market, and the things go out of control. Due to the diminished liquidity, the new orders are not placed or executed on time. Also, this provides an opportunity for the large holders to manipulate and change the exchange prices. Additionally, with a lack of liquidity, markets become more volatile and see more price slippages (Figure 5.8).

Figure 5.8: Liquidity of money is required to maintain the market. S o u r c e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 6 / 0 4 / 3 0 / 0 0 / 2 8 / d o l lar-1362244_960_720.jpg

Another issue which has risen in some previous time is of the reduced liquidity. This reduced liquidity puts the power into the hands of cryptocurrency exchanges with large liquidity. In current scenario, there are some major exchanges that now levy a fee of up to a million dollar to get tokens listed. In this way, they are essentially selling liquidity to the token projects.

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5.6.6. Price Manipulation In present times, the majority of exchange platforms for the cryptocurrencies are only lightly regulated. This always leaves a room and paves the way for some shady or illegitimate maneuvers. Many times, it is reported that crypto exchanges have used robots to manipulate and alter the prices of coins. A similar incident was reported in September last year, where a famous cryptocurrency trader and analyst Alex Kruger exposed a promotion on Bithumb. Bithumb is an exchange platform for the cryptocurrencies that inflated the trading volume on the exchange. “There currently are $250 million [in] fake volume traded at [the] Korean crypto exchange Bithumb, every day at 11 a.m. Korean Time, since Aug. 25. Bithumb offers 120 percent payback of trading fees as an airdrop. Trading fees are 0.15 percent taker. To collect the full KRW 1 billion rebate, a wash trader must thus trade KRW 278 billion. That is $250 million in daily fake volume. Notice how 31K Bitcoin is traded at exactly 11 am,” Kruger explained.

5.6.7. Transaction Delays The use of the cryptocurrency transactions started because they were fast than the conventional transactions. But nowadays, there are certain delays that are being experienced on the exchange platforms. These delays can happen many times and can be a way to ensure the protection of the money of the users from hackings or fraudulent transactions. The policy of the transaction delay has been adopted by many platforms for the cryptocurrency exchange. The platforms of the exchanges of the cryptocurrency sometimes deliberately delay the transactions if some sort of suspected activity is detected and it is tracked that the user did not authorize the transactions.

5.7. CONCLUSION In the modern world, this should be noted that the rise of cryptocurrency is the future of the financial market. There are certain scenarios that have been built up in the world that have led to the digitalization of every aspect of life. Lifestyle, food, automation, and the finances are moving towards the trend of digitalization. The presence of the cryptocurrencies in the market makes it important to note that this will be the only mode of transactions, if not in the near future, then in the distant future. The mining of the cryptocurrencies has to be done as this is the process that makes the digital and the cryptocurrency usable for the user in the real world. The mining of

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the cryptocurrency is very important as this only makes the connection of the real world with the digital currency. Different requirement of mining state that even the transactions and the processes of the digital currency and the cryptocurrencies need to be updated with the progression of time. As the technology advances more towards the line of perfection and development, the platforms and the requirements of the cryptocurrencies updates themselves to match the current trends in the market. The change of the mining hardware and the update of the mining software makes it very evident that even the new types of currencies and their processes need to kept updated with the advent of the technology and the penetration of the technology in the financial market of the world. Similarly, the exchange platforms that are designed to convert the digital and the cryptocurrencies for the fiat currencies like US dollars and Euros are very important for maintaining the connection of the virtual financial market with the traditional and the conventional trade markets in the world. It is very important to note that there are many platforms that have been created with the passage of time. These platforms offer various facilities to these users and the members of the platforms for the exchange of the cryptocurrencies and the digital currencies. Apart from the conversion of the digital and the cryptocurrencies to fiat currencies, the conversion of one cryptocurrency to another is very important process. It is important to note that there are many platforms that levy no charges on the conversion of one type of cryptocurrency to another type of cryptocurrency. But these platforms do not offer any kind of security and surety of the completion of the transactions. It is very important for the user and the member of the exchange platform to keep the security and the surety of the transaction in mind while choosing the platform for the exchange of the cryptocurrency and the digital currency. The mining and the exchange of the cryptocurrency and the digital currency is the most important aspect of the ecosystem of the digital and cryptocurrency. It is very important for the financial market experts to note that the security and the surety of the transactions and the processes of the cryptocurrencies and the -digital currencies is mandatory. The transaction charges that are being levied on each transaction should be low. Decentralization of these networks and the exchange platforms is required to build a trust between the user and the servers. The mining of the cryptocurrencies should be done on the servers which are secure enough not

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to leak the confidential data of the members on the platform. The hardware and the software that is used in the various processes of the mining and the exchange should be of the latest technologies. This is a must for making the platforms a reliable and viable access for the users. The challenges that are being faced by the cryptocurrencies are that of hacking and lack of liquidity. As the technology advances and rises in its amplitude, the hackers also gain more access to the new methods to break into the networks that are secure. For prevention of the hackings that are being carried in the secure networks, it is important to decentralize the networks. On the issue of liquidity, it is important to maintain liquidity so that the market of the digital currencies and the cryptocurrencies should not break down in the times of economic crisis. To conclude, it is important to note that the proper updating of the serves and the technologies of the digital and the cryptocurrencies is very important in the proper conduction of the exchanges and the trades on the platforms of the exchange of the digital currencies and the cryptocurrencies.

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Acheson, N., (2018). How Bitcoin Mining Works – CoinDesk. [online] CoinDesk. Available at: https://www.coindesk.com/information/howBitcoin-mining-works (Accessed on 7 May 2019). CoinDesk, (n.d.). How to Mine Litecoin – A Guide on Litecoin Mining and Other Altcoins. [online] Available at: https://www.coindesk.com/ information/how-to-mine-litecoin (Accessed on 7 May 2019). Coinpursuit.com., (2014). Currency Mining | Best Methods. [online] Available at: https://www.coinpursuit.com/articles/what-is-digitalcurrency-mining.137/ (Accessed on 7 May 2019). Genesis-mining.com., (n.d.). Litecoin Mining (The Ultimate “How To” Guide) | Genesis Mining. [online] Available at: https://www.genesismining.com/litecoin-mining-guide (Accessed on 7 May 2019). Krishnan, H., Saketh, S., & Tej, V. V., (2019). Cryptocurrency Mining – Transition to Cloud. [eBook] Available at: http://file:///C:/Users/ ADMIN/Downloads/Cryptocurrency_Mining_-_Transition_to_ Cloud.pdf (Accessed on 7 May 2019). Shepherd, A., & Afifi-Sabet, K., (2018). What is Cryptocurrency Mining? [online] IT PRO. Available at: https://www.itpro.co.uk/ digital-currency/30249/what-is-cryptocurrency-mining (Accessed on 7 May 2019). Song, S. H., (2018). Cryptocurrencies and the Economics of Money. [eBook] Frankfurt. Available at: https://www.bis.org/speeches/ sp180624b.pdf (Accessed on 7 May 2019). Stroud, F., (2019). What is Cryptocurrency Mining? Webopedia Definition. [online] Webopedia.com. Available at: https://www. webopedia.com/TERM/C/cryptocurrency-mining.html (Accessed on 7 May 2019). Tuwiner, J., (2019). What is Bitcoin Mining and How Does it Work? (2019 Updated). [online] BuyBitcoinworldwide.com. Available at: https://www.buyBitcoinworldwide.com/mining/ (Accessed on 7 May 2019).

Chapter 6

Monetary Policy and Alternate Currencies

CONTENTS 6.1. Introduction .................................................................................... 148 6.2. Monetary Policy and Digital Age..................................................... 151 6.3. Central Bank Policies Around the World ......................................... 156 6.4. IMF and Central Banks Response to Cryptocurrencies..................... 165 6.5. Implications of Digital Currencies for Central Banks ....................... 169 References ............................................................................................. 172

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The emergence of cryptocurrencies like Bitcoins have raised questions about its impact on the monetary policy. They comprise a small fraction of the global transaction but could gain more share in the financial markets in the future. This chapter discusses about the challenges the monetary policies face in this digital age. There is a general consensus among the central banks regarding cryptocurrencies. All of them feel that the customer should be aware of the risks associated with it. This chapter discusses the measures taken by some central banks around the world to warn its citizens. It also discusses other guidelines that have been issued with respect cryptocurrencies. At present no country recognizes Bitcoins as a legal tender. The Central Banks are contemplating the issue of its own digital currency to protect its share in the financial markets. The IMF has also backed this proposition. This chapter discusses few aspects involved in the implementation of central bank digital currency (CBDC). This chapter concludes with the implication of digital currency for monetary policy of the central banks.

6.1. INTRODUCTION The rise of cryptocurrencies and its cultural presence raises the question of how it may affect the established monetary policies. Some experts suggest that central banks would face issues to manage national economic policy goals due to this emerging trend. On the other hand, other experts believe that central banks can issue their own national cryptocurrency which could aid the monetary system. Although cryptocurrencies are a minuscule fraction of world’s financial assets, this situation may change in the future. This would alter the menu of options available to central banks in certain economic situations. A good example of the argument that Bitcoin will thwart monetary mechanisms was put forth by a vice chair of the U.S. Federal Reserve Bank, Randal Quarles, at a financial conference in 2017. Quarles explained, “While these digital currencies may not pose major concerns at their current levels of use, more serious financial stability issues may result if they achieve wide-scale usage.” He argued His opinion is that the existence of cryptocurrencies during times of economic crisis may thwart efforts to stem price and credit risk. This is because the fiat currency makes become volatile. This argument is applicable to all alternative currencies in the event of a financial crisis. In an emergency event, the main difference between assets like gold and cryptocurrency is

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that the latter is easier to hold for people of all economic backgrounds. This is one major advantage of cryptocurrency in countries which has poor monetary management. Such countries lack accessible forms of protection during periods of extreme inflation and the associated ills. Central banks of countries all over the globe are varied in their stance towards cryptocurrencies, and not all have been antagonistic towards it. There is a diversity of opinions even within the Fed, and the leaders of several central banks have commissioned research and formed exploratory committees to determine how their institutions can best leverage these muchdiscussed technologies. Central banks have realized that cryptocurrencies can work similar to cash. It is a semi-anonymous medium of exchange which can be accessed by individuals as well as financial institutions. Moreover, it is cheaper and easier to handle. Some central banks have also considered introducing their own cryptocurrencies to act as a substitute for the fiat currency. The governor of central had acknowledged his interest in cryptocurrency. Sweden is also working on cryptocurrency, and the Risk bank hopes to launch it in the next decade. This is an encouraging trend that the central banks have a positive approach towards digital currency. However, it remains to be seen if they meet the requirements of the central bank created monetary base. The distributed cryptocurrencies are generally maintained by a public ledger; hence it cannot be controlled by a single party. Central banks have complete control over money supply and can increase or decrease the supply to meet the objectives of their monetary policies. However, cryptocurrencies are rigid to the policy needs. Indeed, this monetary rigidity is the source of much theoretical economic debate within the cryptocurrency community, with some offering suggestions for digital currencies that change the rate of supply in response to certain economic targets. Central banker may find the cryptocurrency technology promising. But they would seek to exercise complete control over the monetary issue, and digital currency would serve this purpose better than cryptocurrency. However, e-currencies do not offer the benefits of cryptocurrency. It does not offer increased privacy and censorship-resistance. One aspect of the cryptocurrency technology that is drawing considerable attention is the distributed technology. The Monetary Authority of Singapore and Bank of Canada have not adopted it as official money. But they are using a structure similar to block-chain to simulate real-time gross settlements. These projects are still in their nascent stage but may act as a useful

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technique for banks that are thinking ahead of its times. Banks at present hold assets like gold, diamonds, and others as reserves. They may also treat cryptocurrency as the same and start investing in them. Some experts even suggest that if the cryptocurrencies become more stable, banks may find it profitable to add it to their portfolio of assets. In fact, they believe that since some cryptocurrencies have better features than the current monetary system. Hence the central banks may switch over to a Bitcoin-based reserve system entirely, echoing the former global gold system. Cryptocurrencies can develop to a stage where they can add to the existing range of monetary options to the entire population. This will ensure a degree of liberty and security that the fiat currencies have not been able to offer. They currently exist in a small and experimental corner of the world’s financial markets, and are therefore unable to restrain central bank’s monetary policy levers. The efforts of some central banks that have expressed interest in this technology are laudable. However, they may not adopt distributed digital currency on a larger basis yet since they will not be able to control its supply. Distributed digital technologies may find acceptance in some services like to aid in settlement services and as a part of the reserve portfolio (Figure 6.1).

Figure 6.1: Representation of cryptocurrency. Source: https://www.publicdomainpictures.net/en/view-image.php?image=247 644&picture=cryptocurrency

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6.2. MONETARY POLICY AND DIGITAL AGE The global financial crisis and the bailouts of major financial institutions renewed skepticism in some quarters about central banks’ monopoly on the issuance of currency. Such skeptic situations gave birth to the generation of crypto assets. This creation challenged the governing power of central bank and other financial institutions. The state support currency was also affected by this new invent. Couple of decades ago when the internet was advancing, some prominent central bankers and economists were apprehensive that this advancement would make the role of central banks redundant. Although this prediction is not true yet, the emergence of crypto assets has rekindled this debate. In the future, these assets may serve as alternative means of payment. This would see a drop in demand for the central bank money. The question that arises is how effective the monetary policy will remain in a world without central bank money? At present crypto assets are volatile and are not reliable and hence do not pose any threat to the currencies of any country. They are characterized by instances of fraud, operational failure, security breaches, and other illicit activities. Some possible effects of cryptocurrency are discussed below.

6.2.1. Addressing Deficiencies The drawbacks of cryptocurrencies can be addressed by technological advancement. To fend off potential competitive pressure from crypto assets, effective monetary policy should be in place. Monetary policies can imbibe the properties of crypto assets and their technology to get more acceptances for fiat currency in this digital era. The market value of crypto assets is dependent on its potential to be exchanged for other modes of payment and its store of value. Unlike the value of fiat currencies, which is anchored by monetary policy and their status as legal tender, the value of crypto assets rests solely on the expectation that others will also value and use them. Since valuation is largely based on beliefs that are not well anchored, price volatility has been high.

6.2.2. Deflation Risk Some crypto assets like Bitcoin do not carry much inflation risk since its supply is not flexible. However, they cannot qualify as stable monetary regime since they lack the following functions:

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• •

They do not offer protection against the risk of structural deflation. They are not capable of safeguarding against temporary shocks and hence cannot play a role in ensuring an uninterrupted business cycle. • They cannot act as a lender of last resort. A longer track record can ensure more acceptances in the future which may boost its adoption. The central banks could formulate better issuance rules based on artificial intelligence which could make the valuation of the cryptocurrencies more stable. “Stable” coins are already appearing: some are pegged to existing fiat currencies, while others attempt issuance rules that mimic inflation- or price-targeting policies (“algorithmic central banking”). There are some advantages of cryptocurrency which makes it attractive for micropayments. They allow anonymous payments. Moreover, the units of payments can be further divided. Their relevance is expected to continue to increase in service-based digital economy. Moreover, crypto asset payments and receipts are not based on the clearance and settlement of a third party, unlike bank transfers. The international payments are more expensive, involve a lot of clearance efforts and are opaque. The cryptocurrencies can address this issue. The crypto assets and distributed ledger technology reduce the time for international transfers. They bypass correspondent banking networks and hence can reach their recipient in seconds. Hence there is high possibility that some crypto assets which are more stable will find wide-spread usage. It will act like fiat currencies for many purposes in some countries or private e-commerce networks.

6.2.3. Payment Shift The emergence of crypto assets and higher acceptance of distributed ledger technologies is indicating the growing popularity of value or token-based payment. This is shift from the conventional account-based payment system. In account-based transfers, an intermediary is involved, and payments and receipts are recorded in an account. Whereas in a token or value-based system a commodity or currency is simply transferred which acts as a payment object. The payment object plays a crucial role, and the transaction is completed only when it is verified. Here the trust in the counterparty or an intermediary is not important.

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This shift can cause a significant change in the way money is created, with commodity money gaining importance again in the digital age. In the 20th-century credit relationships played an important role in monetary transactions. Central bank money, or base money, represents a credit relationship between the central bank and citizens (in the case of cash) and between the central bank and commercial banks (in the case of reserves). The cryptocurrencies have properties of a commodity. They do not represent the liability of any entity, and hence credit relationship is not a part of such assets. Economists continue to take deep interest in money. They seek to ascertain the reasons behind the alternative phases of existence of commodity and credit money throughout history. If crypto assets pave way for commodity money, the usage of fiat currency is expected to decline in this digital age.

6.2.4. Monopoly Supplier This shift can have an impact on the monetary policy of the central banks. This decline in usage of fiat currency will reduce the control of monetary policy over short-term interest rates. Central banks establish the short-term interest rates for interbank reserves, and this plays an important role in the monetary policy. The central banks may not remain the monopoly supplier of such reserves which will curb its ability to implement the monetary policy. Economists disagree about whether massive adjustments in central bank balance sheets would be necessary to move interest rates in a world where central bank liabilities ceased to perform any settlement functions. One possibility is that to control the crypto world, the central bank may buy and sell many crypto assets. Regardless of such disagreements, the ultimate concern is similar: “The only real question about such a future is how much the central bank’s monetary policies would matter” (Woodford, 2000). To Benjamin Friedman, the real challenge is that “the interest rates that the central bank can set become less closely—in the limit, not at all— connected to the interest rates and other asset prices that matter for ordinary economic transactions” (Friedman, 2000). In other words, if central bank is unable to define the unit of account for majority of the monetary transactions, then its control diminishes, and the monetary policy becomes redundant. The cryptocurrencies may exercise more control over the payment units in this case.

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Dollarization in some developing economies provides an analogy. When most of the transactions in the domestic financial system are made through cryptocurrencies, the monetary policy for the fiat currency becomes weak.

6.2.5. Competitive Pressure The central banks face a challenge in controlling the alternate currencies. They exert a competitive pressure on the bank’s currency. The central banks may take a few measures. Their first objective would be to make fiat currencies more stable and better. First, they should continue to strive to make fiat currencies better and more stable units of account. Christine Lagarde, the Managing Director of IMF noted in a speech at the Bank of England last year, “The best response by central banks is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.” The fiat currencies can be expected to be maintained as stable units of account only if the central banks adopt an effective policy with the help of the collective wisdom of experts. Advancement in technologies is expected to benefit the central bank policymaking. They can make use of artificial intelligence, big data, and machine learning to formulate effective policies. Secondly, cryptocurrencies should be regulated by the central bank. This will eliminate any unfair competition and regulatory arbitrage. Some measures may include taking effective steps to prevent money laundering, safeguarding the consumers from fraud, imposing tax on crypto payments. This will also prevent the misuse of cryptocurrencies for illegal activities. Third, central banks should take steps to ensure that the fiat currency remains the preferred method of payment. For example, they could issue digital tokens which can be used conveniently in this digital age. This would also supplement their physical cash and reserves held by banks. The digital currency controlled by central banks can be exchanged in a decentralized manner.

6.2.6. Safeguarding Independence CBDC could help counter the monopoly power that strong network externalities can confer on private payment networks. The advantage derived from this is reduced transaction costs. This would be beneficial for small businesses and individuals who do not have much access to banking

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services or can do so at a high cost. One drawback of cash is that it cannot be further divided into smaller units. Whereas digital currency will have more flexibility in its number of denominations. From a monetary policy perspective, interest- carrying CBDC would help transmit the policy interest rate to the rest of the economy when demand for reserves diminishes. By issuing such currency, the central banks will not lose out on the income they earn from currency issue. This would enable the central banks to function smoothly, finance their operations and distribute the income earned to the government. The CBDC would require careful considerations. It would involve choices and trade-offs in designing the digital currency of the central bank. One important consideration is to mitigate any additional risk that banks may face because of use of digital cash. Each country will view the risks and benefits from its own perspective, and this would differ from country to country. It would depend on various factors like the extent of financial and technical development. The central banks are benefited by advancement in technology. At the same time, they also face challenges. The central bank must play a crucial role in maintain the public trust in fiat currency. They can stay in the game by making central bank money the preferred medium of monetary settlement and providing more stable digital currency. This would help them maintain relevance in the digital economy (Figure 6.2).

Figure 6.2: Cryptocurrencies have an impact on fiat currencies.

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Source: https://www.thetravelmagazine.net/will-currency-fluctuations-affect-british-holidaymakers.html

6.3. CENTRAL BANK POLICIES AROUND THE WORLD The central banks and the government have taken notice of the meteoric rise of cryptocurrencies. These alternate currencies are ubiquitous, prompting the authorities to tackle them with their policies. One of the most common actions identified across the surveyed jurisdictions is government-issued notices about the pitfalls of investing in the cryptocurrency markets. The central banks issue several warnings about the main difference between the fiat currencies and the cryptocurrencies. While the former is guaranteed by the state, the latter is not. The organizations that control and enable crypto-based transactions are not regulated organizations. The investors in most cases have no legal recourse in case of fraud or default in payments, and then they enter into the transactions at their own risk. The Central Bank policies of some of the countries with respect to cryptocurrencies are discussed in this chapter.

6.3.1. Regulations in USA The cryptocurrencies are not regulated by central bank policies at present. The US Treasury issued a statement stating that virtual currencies (VCs) are not legal tender within US. Citizens can still use cryptocurrencies, but no business or individual is obliged to accept cryptocurrencies in lieu of payment. Both the parties to a transaction must consent to the payment method, and no illegal commodity should be involved for the transaction to be considered legal. Banks may refuse to accept payment in cryptocurrencies since they are not legal tender (Figure 6.3). The US Treasury added that use of VCs falls under the purview of antimoney laundering law since it is a money services business. Recordkeeping and reporting responsibilities also apply on businesses that use VCs. The regulations seek to protect the customers and traders. It is not necessarily aimed at curtailing the cryptocurrency operations. The attitude towards cryptocurrencies varies by state.

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Figure 6.3: Federal Reserve Bank of Chicago. Source: https://commons.wikimedia.org/wiki/File:Federal-reserve-bank-ofchicago.JPG

6.3.2. Central Bank of Costa Rica The Central Bank of Costa Rica and its decentralized agencies took notice of the emergence of cryptocurrencies in October 2017. They issued a statement warning the all the financial institutions and public at large about the risk associated with investing in cryptocurrencies or purchasing them with the intention of using them as means of payment. The statement of Central Bank explained that articles 42–51 of the Organic Law of the Central Bank founded the colon as the monetary currency in Costa Rica. It also emphasized that only the Central Bank has the authority to issue coins and bills. This statement of the Central Bank clarifies that cryptocurrencies cannot be regarded as the legal tender and the Central Bank does not back this currency. The cryptocurrency is not an effective means of payment for settling transactions. Moreover, it cannot be enforced on any person to accept it as a method of payment. Moreover, cryptocurrency payments cannot be made through National System of Electronic Payment (SINPE). The Central Bank policy also states that they cannot be considered as foreign currency since it is not issued by a Central Bank of the foreign country. Hence, they do not have the security offered by the free currency convertibility provisions of articles 48 and 49 of the Organic Law of the Central Bank.

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The bank also emphasized that the financial entities is obligated to carry out the risk analysis of the new technologies. They are obligated by prudential regulations to prevent illegal activities like financing of terrorism, prevention of money laundering. The policies of the Central Bank also state that these warnings are not limiting and do not exclude other risks inherent in the use of digital currency, and that the Central Bank will continue to study the issue.

6.3.3. Bank of Mexico The Central Bank has the power to regulate virtual assets. They specify the virtual assets that can be used in the country and their characteristics and the restrictions associated with such assets. They also have the power to authorize financial companies to perform transactions with the virtual assets. The Central bank obligates the institutions that use the cryptocurrencies to carry out transactions to disclose the risks associated with them. This risk must be communicated clearly through the means they use to provide these services: • • • •

Crypto assets are not legal tender and are not backed by the Bank of Mexico; The transaction using cryptocurrency are irreversible; The value of cryptocurrencies is volatile; They have some inherent risks like technical risk, fraud risk, etc.

6.3.4. Central Bank of Canada Canada allows the use of cryptocurrencies; however the same is not considered legal tender in Canada. The central bank of Canada, which is the Bank of Canada, is calling authorities to work towards policies to govern the cryptocurrencies. It is important that the policies are globally aligned. The Central Bank governor Stephen Poloz also raised concerns about cryptocurrencies last year. He opined that the cryptocurrencies could be viewed as gambling and not as an investment. According to the Bank of Canada’s senior deputy governor Carolyn Wilkins that the strategy has to encompass both cash and the derivative products. “While activity might be too small right now to be systemic, at some point they could have implications for financial stability,” she said. “The

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crypto world is moving fast, and is largely unchecked.” Wilkins also raised concerns about investor protection, the risk of illegal activities and the threat to market integrity. She acknowledged that widespread adoption of digital currency would pose challenges for the central bank and its monetary policy. She emphasized it is important to do the ground level work and collaborate with the experts in the industry who are working with it. The Bank of Canada is jointly working with Payments Canada and R3 in a Project called Jasper. It aims to the impact of distributed ledger technology on the whole payment system.

6.3.5. Eastern Caribbean Central Bank (ECCB) The Eastern Caribbean Central Bank (ECCB) is the central bank for eight island economies in the Eastern Caribbean Currency Union. They have a common currency called the Eastern Caribbean dollar. On March 9, 2018, the ECCB signed a memorandum of understanding with the Barbados-based financial technology company Bitt Inc. agreeing to participate in a pilot program that will enable it to issue a digital currency. This pilot is expected to make use of distributed ledger technology and create digital Eastern Caribbean Dollar. They are expected to use a blockchain platform to develop a safe and secure digital finance ecosystem. This will be used to evaluate the functionality and viability of this digital currency. The ECCB will work with Bitt Inc to develop effective technology that helps in compliance, preventing finance of terrorism, monitoring transaction, etc. The pilot will also focus on developing a secure, resilient digital payment and settlement platform with embedded regional and global compliance; and the issuance of a digital EC [Eastern Caribbean] currency which will operate alongside physical EC currency.

6.3.6. The Middle East and North African Countries The governor of Central Bank of Bahrain declared during the parliament session in the Shura Council that Bitcoins are illegal and that they are not recognized by any financial institution. However, Bharani citizens can invest in cryptocurrencies in other countries. In January 2018, the Central Bank of Egypt asserted that only the official paper currencies approved by the bank can be used for transactions within the country. It also issued warnings to the public regarding risk associated

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with the cryptocurrency. The Central Bank of Iran barred all financial institutions in Iran from handling cryptocurrencies On April 22, 2018. It also prohibited investing in VCs or promoting them. The Central Bank’s action was to complement the recent efforts of the government to tighten its anti-money laundering policies and prevention of financing for terrorist activities. Earlier the CBI had warned people of the potential risks but had not banned it. This ban comes as a blow to supporters of cryptocurrency and view it is a tool to overcome the challenges in the banking sector. Before the ban was announced, the CBI’s Information Technology Chief had reported that, along with the adoption of a framework that should be adhered to for using cryptocurrencies, the Central Bank was considering the adoption of a national VC, either to be generated by the Central Bank or another entity. The Iraqi Central Bank has also banned the use of cryptocurrencies and has stated that the currency traders who use them will be liable to the penalties that are applicable as per anti-money laundering act. On February 19, 2014, the Bank of Israel warned the public against transacting in crypto assets. In addition, the Bank of Israel said in a January 2018 statement that “it would not recognize VCs such as Bitcoin as actual currency and it was difficult to devise regulations to monitor the risks of such activity to the country’s banks and their clients,” according to Reuters. The Central Bank of Kuwait prohibits the trading in cryptocurrencies including e-payment transactions. They issued warning to public regarding the risks of cryptocurrencies. In January 2018, the CBK announced that it was creating an infrastructure for the financial and banking sector in the country including the issuance of an e-currency, which it distinguished from VCs. The local digital currency will also be covered by the policies for e-payment. The local digital currency will have some features similar to paper currency, and can be exchanged with other currencies as well as for payment of goods and services. In December 2017, the Central Bank of Oman declared that it has not implemented any policies to monitor and control the VCs. It also warned the citizens of its potential risk and asserted that it is not responsible for any frauds while dealing with it. In February 2018, the Central Bank of Qatar issued a circular to all financial instruments against dealing in cryptocurrencies and

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imposed penalty of violators. It termed cryptocurrencies illegal and stated the various inherent risks of such currencies.

6.3.7. Central Bank of Kenya In December 2015, the Central Bank of Kenya issued a public notice titled “Caution to the Public on VCs such as Bitcoin.” It explicitly stated that VCs are unregulated and cannot be regarded as legal tender. This means that “no protection exists in the event that the platform that exchanges or holds the VC fails or goes out of business.” The circular stated the following risks of trading in VCs: • • •

These digital currencies offer anonymity which makes them vulnerable to financial frauds and money laundering. The platforms in which they are traded are unregulated. If they collapse, the users will not have any legal course of action. These currencies are speculative in nature since it is not backed by any underlying asset. This makes the currency vulnerable to volatility and exposing the users to losses.

6.3.8. Central Bank of South Africa In December 2014 the South African Reserve Bank (SARB), issued a position paper on digital currencies. It stated currencies issued by are legal tender, whereas decentralized convertible VCs (DCVCs) are not. This means that “any merchant or beneficiary may refuse VCs as a means of payment.” The SARB warns of the risks associated with these unregulated VCs. SARB stated that “no legal protection or recourse is afforded to users, traders or intermediaries of VCs and such activities are performed at the end-users sole and independent risk.” It noted that the low volume of the VC does not pose any systematic risk at present. However, it recognized the need for monitoring it constantly and said: “reserves the right to change its position should the landscape warrant regulatory intervention.”

6.3.9. Central Bank of India In July 2018, the Reserve Bank of India prohibiting all banks and other regulated entities from dealing with individuals and business that use cryptocurrencies. This amounts to a ban on banks in dealing with companies or individuals that trade in cryptocurrencies.

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“VCs, also variously referred to as cryptocurrencies and crypto assets, raise concerns of consumer protection, market integrity, and money laundering, among others. In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs,” the RBI said in a statement. The RBI deputy governor Kanungo said that globally there is a fear that these currencies will have an adverse impact on market integrity and capital control. The RBI gave a time frame of three months to the banks to unwind any business relationship with those who dabble with the VCs. However, Kanungo added that the block chain technology also has its potential benefits for the financial system which could be exploited for advancing the economy. The RBI also expressed interest in fiat digital currency which is now being explored by many central banks of the world. The RBI added that an inter-departmental group has already been constituted to do a feasibility and desirability study on it.

6.3.10. Central Bank of South Korea In South Korea, cryptocurrency dealers must deal using real name bank accounts from January 30, 2018. They must enter into a contract with bank to trade in cryptocurrencies. The banks have to exercise reasonable caution. It must evaluate the effectiveness of the dealer’s cyber security system and their management before they enter into the contract. In order to make a deposit into their e-wallet at a cryptocurrency dealer, a cryptocurrency trader must have an account at a bank where the cryptocurrency dealer also has an account. The bank checks verify the trader’s details while opening the account and the trader specifies the bank name to the dealer. He dealer cross-verifies the details and makes an application to the bank to register the trader’s account. Cryptocurrency traders can maintain anonymity. However, they can only withdraw from the accounts but not deposit in it. South Korea does not permit minors and foreigners, even if they are residing there to trade in cryptocurrencies. Under the Act on Reporting and Using Specified Financial Transaction Information, financial institutions are required to report financial transactions that are suspected, based on reasonable grounds, to be illegal or to involve

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money laundering. There are some guidelines that banks have to follow to prevent money laundering through cryptocurrencies. Following are some of the situations that are considered to be suspicious: •

If a cryptocurrency trader deposits or withdraws 10 million won or more in a day. The threshold for a week is 20 million won. • The number of transactions by a trader in a day exceeds four and in a week six. • If he trader is an organization or company. • If a trader fails to produce a record of the deposits but withdraws most of the funds in cash. • If they are rational reasons to believe that a trader is evading reporting by financial institution by dividing the amount or number of transactions. South Korea’s Financial Supervisory Service chief, Choe Heung-sik stated that ‘normal’ cryptocurrency trading can be carried out. He also said that the financial institutions should facilitate such transactions.

6.3.11. Central Bank of China The Central bank of China, the People’s Bank of China (PBOC) set up an Institute of Digital Money. The objective is to study the digital currency. In March 2018, Zhou Xiaochuan, who was the PBOC governor at that time, addressed the regulatory status of cryptocurrencies. He had stated that VCs are not legal tenders and the banking system will not accept them. Earlier it had banned initial coin offerings (ICOs) in China. According to the Announcement, ICO financing that raises “so-called ‘VCs’ such as Bitcoin and Ethereum” through the irregular sale and circulation of tokens is essentially public financing without approval, which is illegal. The announcement such tokens do not enjoy the status of legal tender since the monetary authorities have not issued it, hence should not be used in markets as currencies.

6.3.12. European Union In 2016, the European Commission sought to amend the fourth Anti-Money Laundering Directive (AMLD) by including VC exchange platforms and custodian wallet providers. They were now obligated to complete due diligence requirements. They also needed to have a policy that would recognize any illegal transaction, prevent, and report it.

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The proposal contains a definition of VCs, which are described as “a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically.” The European Commission presented an Action Plan on March 8, 2018. This plan aimed to leverage technology and apply its innovations in financial services. This includes block chain, artificial intelligence and cloud services. The recently introduced EU Blockchain Observatory and Forum is entrusted with the responsibility to report opportunities and challenges of crypto assets. It is directing all its efforts on a comprehensive strategy to develop block chain and distributed ledger technology which is concerned with all sectors of the economy. The Supervisory authorities of three sectors banking, securities, insurance, and pensions, namely EBA, ESMA, and EIOPA issued a warning pertaining to VCs on February 12, 2018. The statement said “highly risky and unregulated products and are unsuitable as investment, savings or retirement planning products.” The EBA has earlier warned consumers about VCs in December 2013 and given opinions about VCs in July 2014 and August 2016. Similarly, ESMA had issued two statements on ICOs in November 2017. EBA welcomes the decision of the European Commission to bring custodian wallet providers and VC exchange platforms within the scope of the Fourth AMLD and not to extend the EU Payment Services Directive 2015/2366 to VC transactions for the time being. EBA suggested that a separate regime should be set up for regulations which would assess risks from VCs and alleviate them. Mario Draghi, the President of the European Central Bank, considers all cryptocurrencies as “very risky assets,” since they are speculative assets and highly volatile. He stated that “digital currencies are not subject to a specific supervisory approach,” but that “work is under way in the Single Supervisory Mechanism to identify potential prudential risks that these digital assets could pose to supervised institutions.” In December 2016, the European Central Bank collaborated with Bank of Japan to launch a project named Stella. This research project was aimed at exploring how distributed ledger technology can be used for financial market infrastructures.

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6.4. IMF AND CENTRAL BANKS RESPONSE TO CRYPTOCURRENCIES The decline in cash usage and growing interest in cryptocurrencies has given rise to the expectation that central banks should enter e-money market. In 2018, IMF also expressed interest in the revolutionary idea of a CBDC (Figure 6.4).

Figure 6.4: Digital representation of digital currency.

Source: https://ak3.picdn.net/shutterstock/videos/13205993/thumb/1. jpg?i10c=img.resize(height:160) Christine Lagarde, the IMF chief, “Technology will change, and so must we,” she said, speaking at a fintech conference in Singapore on Wednesday. “Lest we remain the last leaf on a dead branch, the others have decided to fly with the wind.” IMF has been promoting CBDC as an alternate digital payment method. The consumers prefer digital modes of payment, and the private sector cannot be trusted with the alternatives they offer. Experts do not completely agree on the concept of CBDC; however, the support of IMF is bringing it to the forefront.

6.4.1. Central Bank Digital Currencies Globally, it is feared that cryptocurrencies may have a negative impact on central banking. It is believed that paper currency will become redundant and digital cash will take its place. There is strong argument supporting the issue of digital currency by central banks. There are some concerns regarding how central banks can get the new digital cash into the economy. The impact of

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the same on financial stability. The Bank of England acknowledged the rise of electronic means of payment and raised questions about the potential of digital cash. The main question raised was “From a monetary and financial stability point of view, what are the costs and benefits of making a new form of central bank money accessible to a wide range of holders?.” Some of the advantages are discussed below. •

It broadens the options of monetary policy and allows the adoption of new monetary tools. It would completely eliminate the need for physical cash. In theory, the interest rates could be lowered below the zero-lower bound. Digital cash can also bring price stability by making ‘helicopter drops’ of the digital currency. • It can also secure financial system. This is because all parties to settle directly in CBDC. It also reduces the concentration of liquidity and credit risk in payment systems. The large banks will gradually lose its systemic importance. • It will promote innovation in payment systems. This would make the regulatory system for new entrants easier, and they can give competition to the existing banks. Moreover, the smaller banks do not have to depend on the larger banks for their settlement. • In the digital age, the electronic mode of payment is replacing the physical cash. Doing so has the advantage of increasing the ‘seigniorage’ – the proceeds from creating money – earned by the Central Bank (and passed on to the Treasury). • CBDC will enable to address alternative finance. Peer-to-peer lenders are involved in substantial lending and decreasing the share of banks. Money creation and distribution is influenced because of this. In case of bank loan, new deposit is created for the borrower, but in peer-to-peer lending new money is not created. The existing deposit is transferred from lender to borrower. By proactively issuing digital cash, the Bank of England can compensate for any shift in lending away from money-creating banks, and the subsequent fall in money creation. • It can ensure financial inclusion. The organizations that provide Digital Cash Accounts are not primary lenders, unlike the bank. They provide service in return of payment. Hence, they will extend their service to those who do not get assistance from banks. Some central bank like the Norges Bank of Norway and Bank of Canada have surveyed in this field of digital currencies with the aim of ascertaining

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whether they can generate electronic tokens instead of printing cash. A token-based CBDC can be used similar to cash to make or receive payments. India has e-wallet like Paytm, Amazon pay, etc. China has Alipay. They are transferring money between e-wallets while the actual funds are guaranteed in the custodian account.

6.4.2. Implementation of Digital Cash The Central Bank has accounts of other commercial banks in which it maintains their deposits. It can issue digital currency by allowing individuals and non-banking companies to open accounts with the Central Bank. This also eliminates the need for distributed ledger payment system. This can be achieved in two ways. The first method is the Direct Access approach. It can allow all citizens to have accounts with the Central Bank. This would have to be supported by internet banking, customer service, and payment card. However, this approach will increase the administrative burden of the bank. Moreover, this could be perceived as inappropriate state involvement in the private sector. The second approach is the Indirect Access approach. In this approach, the Central Bank will be the creator of digital currency, and it will hold them too. However, a private service provider will also be involved who would maintain “Digital Cash Accounts.” All the payments and related services would be offered through this account. These private players will be liable to provide payment services, internet banking, debit cards, and customer assistance. The funds that the customer pays will be completely held by the Central Bank. The DCA cannot invest or lend the money on the customer anywhere else. Hence DCA can pay back the money anytime the customer demands. The Indirect Access approach is better than the direct approach. It helps increase competition and is market driven. Moreover, the Central Bank does not have much administrative burden. Conveniently, the regulatory framework for this approach already exists in the form of the Payment Services Provider model (with minor adaptations).

6.4.3. Management of Issuance of Digital Currency The Central Bank issues money as per the demand. It issues banknotes as per the requirement of the public. In order to meet the requirement of banks, it issues central bank reserves. The same approach can be adopted to issue

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digital cash. The infrastructure for Digital Cash Account can be used for this purpose. The public should have the liberty to choose what amount to invest in bank deposits and what amount to hold in digital cash. The issue of the digital cash depends on the discretion of the public. They determine how much cash is to be issued by transferring the amount from deposit accounts. The money issuance depends on the reaction of the consumer and not of the Central Bank. The alternative approach is to be proactive. The Central Bank could use digital currency as a monetary policy tool to stimulate aggregate demand and influence the economy. Every citizen could maintain a Digital Cash Account, directly or indirectly, at the Central Bank. The Central Bank would find it simple to make occasional ‘helicopter drops’ of the digital cash that is freshly issues, in the accounts of every citizen. The amount could be small and done at a short notice. This new monetary policy tool may give the Central Bank a far more accurate and direct method of implementing monetary policy than conventional monetary policy (adjusting interest rates) or post-crisis policies such as Quantitative Easing. This will not abolish physical cash. They are expected to be around for another couple of decades at least. The digital cash will be as secure as other electronic payment methods.

6.4.4. Central Banks Seek to Retain Control CBDC cannot be compared to cryptocurrencies. In fact, it is intended to work against it. Cryptocurrencies are not regulated by central bank or government. Computers generate them and consume energy while doing so. The central banks are concerned that if they do not take appropriate measures, they will lose control over money supply. This can make financial markets vulnerable. Besides, money laundering and illegal activities may also increase. There is no immediate threat to central banks because of cryptocurrencies. However, in the future, it could make monetary policies less effective and jeopardize the financial stability according to a report published by Bank of Canada. Billions of dollars have been used to build expensive servers and trading. However, it impacts on commerce is still insignificant. David Gerard, author of Attack of the 50 Foot Blockchain, told TRT World “There is almost no cryptocurrency economy. Bitcoin holders have this fantasy of taking over the world of financing when they don’t understand it.”

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6.4.5. Challenges of CBDC CBDC would require customers to maintain accounts with central banks. If this happens, the commercial banks will lose considerable business. The IMF suggests that commercial banks can maintain earnings by charging higher rates on loans and increasing returns on deposits. “If retail customers bank directly with the central bank that would be a very, very secure way of banking their money. But that’s trouble for commercial banks,” said Gerard. He feels that central banks and the IMF are pushing CBDC with the aim of having more data. The supporters of CBDC argue that digital currency governed by a central bank is more secure than the ones offered by private companies. These currencies would also be built on block chain technology like the cryptocurrencies. The information would be encrypted; however, a court could order the central bank to share the information if needed. The CBDC seem to have a good prospect in the future; however, there are hurdles that must be overcome. There will exist a battle of ideologies, one which support central banks monopoly over supply of money and another which thinks otherwise.

6.5. IMPLICATIONS OF DIGITAL CURRENCIES FOR CENTRAL BANKS The emergence of digital currencies will have significant impact on the practices of central banks and the financial system on the whole. The central banks are faced with the opportunity to present their own digital currencies. It has to consider the associated risks as well.

6.5.1. Electronic Money Is Already in Usage The physical currency is still in usage globally, although use of cash is shrinking rapidly. Consumers are moving towards cashless transactions and use credit cards and e-wallets to make payments. Much of the money that central bank issues are not physically present but in electronic form (bank reserves). The idea of digital currencies has been around for some time now. Stefan Ingves, Governor of Sveriges Risk bank said “Most of the central bank money produced is wholesale central bank money, and all of that wholesale money is already electronic. So, when we’re referring to cash, that’s…a tiny, tiny fraction of what’s going on in the system.”

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6.5.2. Central Bank Backed Currency will Continue to Exist The cryptocurrencies have become popular. Still, majority of the population do have confidence in these currencies. They trust the currencies backed by central banks. Despite the erosion of confidence in government institutions, most people still prefer money backed by a central bank, and this is unlikely to change anytime soon. The cryptocurrencies could not scale due to issues like limited capacity in handling transactions. Bitcoin platforms can handle a handful of transactions per second (TPS) while visa systems can handle hundreds of them. Urjit Patel, the governor of RBI said “One reason is because there is lopsided investment. That again underscores that you need a coordinator because you are getting parts of this whole system where a lot of money goes into the mining part [of Bitcoin], and very little goes into everything else.” Agustin Carstens, general manager of the Bank of International Settlements, opines that the new technology cannot substitute the centuries of good practices the central banks have created. The trustworthy currency that is backed by the central banks cannot be substituted.

6.5.3. Digital Currencies Have a Significant Impact on Financial Systems Digital currencies and innovations in the field of technology have many benefits. It can settle domestic and international transactions quickly, minimize the cost of transacting. Most importantly, it will increase financial inclusion. The payment system is expected to become much more efficient. In countries like India and China, even small micro-transactions with street vendors can be completed using digital platforms. These payment systems are decentralized and are intermediated through private platforms. This trend is catch on as more people are shifting to digital money. The new technologies increase the convenience of sending money to anyone at any time. It is a worthy vision for the coming years.

6.5.4. The Challenges of New Technologies One advantage of digital currency is that it will reduce the transaction costs. Hence the price of acquiring information and sharing it also becomes economic. The downside to this is it can destabilize financial markets and intensify contagion from one market to another. In the future, it could

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undermine the business models of conventional banks. The central bank will find it difficult to maintain financial stability since it operates mains through the banking system. The economy has a lot of information, and some information aggregators may become dominant. They may lack good processing ability which can lead to informal cascades and herding. This could pose challenges for the financial institution and regulations. If the traditional role of banks starts shrinking and the central bank plays less role in facilitating settlements, then monetary policy implementation will become more difficult.

6.5.5. The Issue of Digital Currencies by Central Banks Some central banks are exploring the idea of issuing digital currencies. Only couple of central banks has issued CBDC so far, Tunisia, and Ecuador being two nations to do so. The use of cash is fast shrinking in Sweden, and it is contemplating the issue of e-krona. The issue of the digital currency would enable the central bank to retain its market share. They may also be able to charge a negative interest rate, i.e., charge a fee on deposits instead of paying interest. But an official digital currency could reduce the role of traditional banks as intermediaries and lenders, and could pose big problems during a financial crisis, if depositors pull money out of traditional banks to deposit it at the (safer) central bank. However, since the role of traditional banks, it makes them vulnerable during the financial crisis. Depositors could take out money out of traditional banks and deposit in central banks since they are safer. Benoit Coeure, member of the Executive Board of the European Central Bank said in a speech at the International Center for Monetary and Banking Studies “In a systemic crisis…households and businesses could seek to hold their wealth in the riskless central bank liability rather than the riskier private sector one. While this shift could also happen now between deposits and cash, a digital currency would make it cheaper and faster, making ‘digital bank runs’ more frequent and more severe.”

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REFERENCES 1.

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Businesstoday.in., (2019). RBI Cracks Down on Bitcoin; Bans Banks from Dealing with Cryptocurrency Traders. [online] Available at: https://www.businesstoday.in/current/economy-politics/rbibans-cryptocurrency-trade-banks-transaction-Bitcoin-exchanges/ story/274214.html (Accessed on 7 May 2019). Canadian Underwriter, (2018). Bank of Canada Calls for Global Alignment on Cryptocurrency Policy. [online] Available at: https:// www.canadianunderwriter.ca/insurance/bank-canada-calls-globalalignment-cryptocurrency-policy-1004129300/ (Accessed on 7 May 2019). Coinschedule.com., (2018). What are the Cryptocurrency Regulations in the US? | Coin Schedule. [online] Available at: https://www. coinschedule.com/blog/what-are-the-cryptocurrency-regulations-inthe-us/ (Accessed on 7 May 2019). Hasan, S., (2018). How the IMF and Central Banks are Taking on Cryptocurrencies. [online] How the IMF and central banks are taking on cryptocurrencies. Available at: https://www.trtworld.com/magazine/ how-the-imf-and-central-banks-are-taking-on-cryptocurrencies-21719 (Accessed on 7 May 2019). He, D., (2018). Central Bank Monetary Policy in the Age of Cryptocurrencies – IMF F&D Magazine (Vol. 55, No. 2). [online] Imf. org. Available at: https://www.imf.org/external/pubs/ft/fandd/2018/06/ central-bank-monetary-policy-and-cryptocurrencies/he.htm (Accessed on 7 May 2019). Loc.gov., (n.d.). Regulation of Cryptocurrency Around the World. [online] Available at: https://www.loc.gov/law/help/cryptocurrency/ world-survey.php (Accessed on 7 May 2019). O’sullivan, A., (2018). How do Cryptocurrencies Affect Monetary Policy? | Coin Center. [online] Coin center. Available at: https:// coincenter.org/entry/how-do-cryptocurrencies-affect-monetary-policy (Accessed on 7 May 2019). Positive money, (n.d.). Digital Cash: Why Central Banks Should Issue Digital Currency. [online] Available at: https://positivemoney.org/ publications/digital-cash/ (Accessed on 7 May 2019).

Chapter 7

Cybercrime and the Alternative Currencies

CONTENTS 7.1. Introduction .................................................................................... 174 7.2. History of Cybercrime..................................................................... 176 7.3. Cybercrime ..................................................................................... 178 7.4. Types of Cybercrime ....................................................................... 179 7.5. Causes of Cybercrime ..................................................................... 183 7.6. How To Tackle Cybercrime ............................................................. 184 7.7. Concealing Identities Cryptocurrencies Fuel Cybercrime ................ 186 7.8. Five Ways Cyber-Criminals are Trying to Cash in on Crypto-Currency .......................................................................... 189 7.9. How Cryptocurrencies Fuel Cybercrimes ........................................ 191 7.10. Cryptocurrencies and The Revolution in Cybercrime Economics ... 193 References ............................................................................................. 197

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This chapter talks about Cybercrime and the alternative currencies such as virtual currencies (VCs) like Bitcoin. This chapter talks about Cybercrime and its history, defines Cybercrime and Various types of Cybercrime and the causes of Cybercrime. This chapter talks about various methods of tackling the Cybercrime. This Chapter talks about Cryptocurrencies and how it is helping in increasing the cybercrime.

7.1. INTRODUCTION In the field of technology and finance, the innovation of cryptocurrency has gained prominence from just a concept and has come a long way to become famous worldwide in a few decades. There are now more than 1500 different types of currencies options that can be used in which the first centralized currency is Bitcoin that came into existence in 2009. But now it is involved in infecting the remote computer by malware through mining by crypto-jacking. The companies must be alert that any employee is not involved in mining and should take steps to prevent it, as it creates hurdles and consumers will complain about their service. In 2009 the cryptocurrency was created, and Bitcoin came into market. There are now so many players in the market. The rates of cryptocurrencies are extremely sensitive, and in 2017 one Bitcoin were traded at 11, 200 dollars but now it is trading at low rates. The cryptocurrency is discussed in media very often as it trades at very high prices and then now at its lowest and that has come into focus of hackers. The hackers are attacking remote computers to mine cryptocurrency as it requires huge amount of electricity and there has been increase in attacks. The hackers have started demanding money in cryptocurrency as ransom, and this has seen the rise in attack by hackers. The major way to fight these attacks is knowledge. The organization need to train their employees to check these signs of attacks before it does damage. The countries around the world are facing dangers from nature attacks, crumbling infrastructure, and cyber-attacks and from foreign countries, people or individuals. The attack from internet is the completely new form of attack and police is not very much successful in fighting this crime, but in case of physical attack, they are successful. The various agencies that are tasked with the issue of fighting cybercrime does not have enough training

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like the ability of hackers, hackers trying to bike security system of websites, databases, and networks. The chances of cyber-attacks are increasing as the world is more connected through the internet. The similarities and the differences should be known between terrorism, attacks, and crimes related to internet. The lawmakers are facing difficulty in making the policy and strategies as there is no clear definition of cybercrime. There is a major problem as there are very less experts to tackle cybercrime and with protecting personal information online, networks, and infrastructure and this is due to lack of definition of cybercrime. There are many dangers related to internet world is facing these days. The crimes can vary from stealing of information, denial of service attacks and manipulation of data. The first mentioned attack is targeted at websites like Amazon and eBay in 2000. The estimated loss was in total 1.7 billion dollars. The more serious attack that has crippled the infrastructure, communications, and financial markets system has occurred just before the invasion by Russia of Georgia in 2008. There are many attacks which used to take place before in real world but nowadays are connected to internet with the increased use of VC and online anonymity. The crimes mostly are done by remaining hidden and for online currency or VC by transferring the online identity. The various types of laws are passed in 1988 in the USA due to increased online identity theft. If another individual uses another identity without his authority, then this is a crime. This contains all the documents of identity social security numbers, dates of birth, birth, and death certificates, bank, and credit card numbers, as well as biometric data. The police are not able to produce regular data on crime and loss by applying this law. This is lack of complete set of network or structure to classify the crime of identity theft, and so they do differently. The contents of online theft also include the credit card crime and email fraud and other types of offline fraud, so it is difficult to produce data. The cybercrime is increasing from last decade, and now countries are connecting their infrastructure to internet, so this has now become highest priority. The use of internet in governance increases efficiency, but it exposes the infrastructure to various attacks like people who hate the country, the hackers who are agree to country policy and enemy nations who want to steal information or use the data for their benefit. The knowledge of cybercrime is increasing day by day and knows by creating a clear definition of cyber-

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crime and virtual crime or a physical crime, the countries are in a good position to handle these attacks and protect their countries.

7.2. HISTORY OF CYBERCRIME In the daily working of businesses, government, and organizations the computers have a major role, and people have develop a lot of trust in them. The great amount of data is now stored in them. From history on can learn that things that are valuable are always the target of criminals. The criminals target cell phones as they want to benefit from them as in computers people have put large amount of information in them. The criminals have done the robbery of any type in the past to have a hand on someone valuables. The criminals looking for information of expensive value have to break the lock of some office or the building looking for files. The cybercriminals today can attack the remote computers of their victim and the complex working of network of internet it is difficult to have a punishment for them. The governments, institutions, and organizations must come together to and from a bond that surpass political and cultural barriers. The internet has made it possible and gives the people the benefit of it. The internet has a lot of benefits, and it is also a fertile ground for criminal activity as online identity gets stolen to vandalism and theft of government property. The process which changes the working of a product to function normally or to correct the problem is called hacking. The students in some college have changed the functioning of a train model, and from there the concept of hacking has emerged. They find that without completely changing it is possible to change the working of the device. The first programming code used in early computer systems to change and learn the working of computer was applied by these students. The Dennis Ritchie and Keith Thompson have founded the organization known as Bell Labs and developed the Unix Operating System as they become expert in hacking tricks, and this product was more successful than the previous product. These curious individuals went on to work with early computer systems where they applied their curiosity and resourcefulness to learning and changing the computer code that was used in early programs. Some of their hacks became so successful they outlived the original product, such as the UNIX operating system, developed as a hack by Dennis Ritchie and Keith Thompson of Bell Labs. To the general public, a “hack” became

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known as a clever way to fix a problem with a product, or an easy way to improve its function. The computerized phones were the first target of hacking in 1970 of bad attacks of hacking. The people who are smart in technology discovered the right codes or tones to make free long-distance calls. They copied the identity of operators, cheated the phone companies and perform various experiments to learn about tricks on the earliest hardware to exploit the system for their benefit. The hackers changed the software and hardware and dome theft of calling time of international calls and they are really smart and resourceful to called hackers. The detectives who are technology savvy are very less to investigate the crime of hacking, and there is also lack of law to prosecute the criminals in a court of law, so this type of crime is difficult for police. The communication devices are being innovated, and with the availability of new devices to consumers, the hacking is bound to grow. For example, Clifford Stoll, the systems administrator at the Lawrence Berkeley National Laboratory, in 1986 has observed some discrepancy in information of accounting. He discovered the new technology called digital forensic techniques and traced the hacker into the computer network. He attracted the hacker to do more attack to collect information in a tactic so as to trace the hacker. His work paid and hacker was then arrested from number of locations from West Germany, and they are involved in selling military information, passwords to other countries spy agencies. The student of Cornell University Robert Morris created the virus which was discovered in the Berkeley lab attacks. There is an estimated loss of 98 million dollars and infection in 600 computers caused by this worm. The more regular attacks have start to takes place. The government responded by passing various laws related to hacking which made hacking a serious crime punishable by significant jail time and monetary fines. The investigation under a project named Operation Sundevil worldwide in 1990, the investigators seized forty-two computers and more than twenty thousand floppy disks that are being used by criminals for credit card use that is against the law and telephone services. The operation was consisting of one hundred fifty detectives. The hackers were not punished by court of law as the detectives were not successful in their effort to prove the crime but still, it was seen as success in this direction, and it generated lot of positive public relations for law department. This arrest sends the message of fear to hackers that their crime will not go unpunished and they are on watch,

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even in those sleazy and secretive dens of cybernetic vice, the underground boards. The police are very much successful in tackling Cybercrime, but not all steps they have taken are good. The citizens will have to suffer if the police will do mistake. For example, the renowned gaming company has lost its business and was on verge of closing down when police think they are in possession of someone else work. The detectives thought the company has used this work and seized their computers. The company businesses suffered, they have to fire employees, and they missed deadlines as the police not returned the computer on time. The company found out that its data of customers and emails were deleted. The police have filed charges for these crimes. The Police and detectives who are in charge of investigating offenses related to internet and associated activities can make mistakes, and their vigilant activities has caused damage to civil liberties so as a response the organization the electronic frontier foundation was found in 1990. This organization is a group of lawyers, engineers, and other people who have decide to fight and protect the costumers from illegal arrest and lawsuit. The police and judicial can do the best, but criminals will remain in our society. There are an urgent need of technocrats and people both in governments and private organizations to fight this danger and help in avoidance of arrest of innocent people. The people who want to chart their career in territory of cybersecurity should be expert in government law, best in information technology and should be able to understand the point of regulators. The security on internet is a very important for general public and governments and individuals who are always interested in learning new things and tackling difficult social and technological problems.

7.3. CYBERCRIME The crime which is related to computers like hacking, phishing or is used in crimes such as hate crimes or child pornography. The computer technology is used by criminals for blackmailing and bad purpose or to access personal information, or to do theft of business intelligence. The computers are also used for storing information, capturing the data and for communication. The people who are involved in these crimes are known hackers.

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It can also be called an internet crime. The illegal access of computers, forgery of online identity and bank information are some common types of cybercrime. The most serious crimes like cyberterrorism is also needed to pay heed by police. The broad series of tasks are included in cybercrime, and it can be divided into two categories: •

The device or computer network which is the target of attack. These crimes consist of denial of service attack or viruses. • The criminals that do other illegal activities using computers to achieve their goal. Cyberstalking, phishing, and fraud or identity theft are all included in these types of crimes. The central agencies track these criminals who are involved in frauds in banks and smuggling of duplicate gadgets that are used to gain personal information. The agencies also run campaigns to inform public to report cybercriminals and how to be vigilant and informing police about these criminals. The central agency has classified these internet crimes into two categories: •

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The offenses in which the target is computer; for example, to enter into network; the offenses in which the computer is used as a weapon, for example, to start denial of service attack; and offenses which is committed with the help of computers, for example, storing illegal information in computers. The cybercrime as defined by “The Council of Europe Convention on Cybercrime” as a broad series of bad activities, containing the unauthorized capture of data, meddling in computer to compromise network integrity and security and copyright infringements. The other types of internet crimes are illegal gambling, the trade of illegal things, such as arms, drugs or duplicate products, as well as the solicitation, production, possession or distribution of child pornography.

7.4. TYPES OF CYBERCRIME The increased progress of information technology market has good as well as negative side, which has fuelled the rapid growth of cybercrime market. The major problem today is tax-free financial transactions moving illegal

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earned money through bank electronic systems. The various types of crimes are

7.4.1. Phishing Scams The attack in which victim is conned into giving details of personal information such as bank account numbers, passwords, and credit card numbers are done by scammers and is known as phishing. These cheaters contact their victims acting as legitimate business such as bank, Telephone Company or even internet service provider via email, text message, and phone call or even through social media. There is another method such as telling computers there is illegal or suspicious activities happening in the account and then ask for information to solve the problem.

7.4.2. Online Scams The frauds which happen online are known as Online scams. It happens by conning costumers into giving the personal details through an advertisement or pop up luring that they have won sweepstakes and they have to pay delivery charges. They will receive nothing but illegal withdrawal will happen over time.

7.4.3. Malware The infection of nasty software in the computer system is called malware. The software that is coded with the intention of doing damage to data and devices. The different names of viruses like Trojan and spyware is collectively known as malware. The number of viruses that will gain intrusion in the computer to do damage, by infecting the computer, tablet, phone; then the criminals can obtain credit card details and other personal information.

7.4.4. Email Bombing The online abuse in one of its form is also known as email bomb. It is spamming of emails to one internet address, and this will cause the server of email to crash or malfunction. The main target here not the theft but the revenge and it are very difficult to work and solve.

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7.4.5. Virus Dissemination The computer program that have a habit to move to other computers connected on a network or viruses that embedded deep to infect a system or files. They modify or delete the data by disturbing the computer operation thus affecting the stored information. The worms don’t have the necessity to attach to the host like a virus. They just reproduce till the time the memory is fully consumed. The concept worm is sometimes used to mean auto reproducing bad malware.

7.4.6. Logic Bombs The bad lines of software with an intention to perform a malicious work which is hidden in a software and it activates when the certain conditions are met is called a logic bomb, also known as slag code. It works as virus, but it is not the same. It is covertly inserted in software, and it keeps hidden until the conditions are ripe. The infected software such as viruses or bombs contains logic bombs which activated at a particular payload or at a predefined time. The planned execution of a task at particular date or time is called as logic bombs. For example, the Friday the 13th virus which attacked the computer only on specific date; it is replicated automatically every Friday that happened to be the thirteenth of a month, triggering system slowdowns.

7.4.7. Theft The various kinds of Theft that happen over the internet and that can be done in various ways such as fake ads; fake emails, viruses, and snooping are collectively called as Internet theft. The target of internet theft is to get hold on personal information and use it to do shopping or steal money out of your bank.

7.4.8. Social Media Hack and Spamming The attack which is generally done as an experiment is called social media hacking. Many actors’ accounts that are hacked starts to follow the people which normally they never, people that put random update. Though it is nothing for people but it can act as joke and can be called an invasion of privacy. The hacked account can also be reported by people, and it can be closed as hackers can post illegal content that can intimidate the people.

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When an individual makes fake account on social media websites and gets followed by certain number of people, then that is called as spamming on social media. The capacity of fake accounts to spread messages by spamming inboxes is done to spread malware.

7.4.9. Electronic Money Laundering The illegal money earned over the time cannot be spent or invested before being caught until and unless it is moved through various channels to make it white. The wire transfer is most effective method employed to launder money by sending messages electronically. It is not possible until now to monitor these transactions due to volume, but now banks are paying attention to any suspected transactions.

7.4.10. Sales and Investment Fraud The scammer can act as employee from investment bank by getting hold on the information of customers, the contact details and available account information for savings or investment account. The scammers then dupe customers by offering them easy and profitable opportunities, as they talk about accounts consumers already own and acquire the trust. It is one of the types of phishing scam.

7.4.11. Eavesdropping and Surveillance The surveillance over the phone or online without the permission of the person is a crime. The one of the main ways of snooping is hacking a communication device, normally a telephone line that gives the criminal access to monitor conversation stealthily. These days computers can be snooped for surveillance and hacking. •

•

Software Piracy: The increased penetration of internet has caused the creation of many websites which offers any song, movie or software for free. The illegal use or distribution of software is called software piracy. People find it good that they are getting free stuff; it is full of risks. Trojans, viruses, worms, and other forms of malware are various types of dangers. Data Diddling: It is not look like the very serious crime in comparison to other cybercrimes but changing the data in the remote computer is called data dwindling.

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The impact of results is great. It includes correcting financial figures up or down marginally; it can be difficult and can make an entire system unusable.

7.5. CAUSES OF CYBERCRIME The criminals on internet are always seeking an opportunity to earn loads of cash. They plan to make places or organizations where daily large amounts of cash come in or go out such as banks, casinos or financial firms their prey and looks for sensitive data. Arresting these criminals is not easy. The number of cyber crimes around the world is increasing rapidly. The computers are at risk, so legislation is important to protect the information from these criminals. These are some of the dangers putting computers at risk•

Easy to Access: The computer system is made up of difficult technology, so there are many chances of break in computer system and protecting from unauthorized access hard all the time. The difficult technology is a cause that creates a chance of breach in computer from illegal access. The criminals can gain access to access codes, retina images, advanced voice recorders by stealing it. They can pass from fireball and biometric system easily and can pass so many security systems. • Capacity to Store Data in Comparatively Small Space The data can be stored in small space, and it is unique characteristics. Thus, it makes an easy for the people for doing theft from any other storage and uses it for their benefit. •

•

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Complex: The complex and difficult lines of millions of code and operating system makes a computer. The brain of humans is not perfect and can make mistakes at any phase. The criminals are bound to take advantage of these opportunities. Negligence: The one of the characteristics of the behavior of humans are negligence. There is a chance that criminals can benefit from mistakes of an individual and can make entry into a computer system and can get access over it. Loss of Evidence: The data associated to the crime is easily destructible. So, Loss of evidence has become a very common & obvious problem which paralyzes the system behind the investigation of cyber-crime.

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7.6. HOW TO TACKLE CYBERCRIME To fight cybercrime effectively, there is need of a network between police departments, the information technology industry, information security organizations, internet companies, and financial departments. The criminals on internet do not fight with each other for power or control in comparison to real world. The criminals help each other to gain knowledge and give a chance to steal information. Therefore, the conventional methods of dealing with crime cannot be used against cybercriminals. For example, there is a company called Alpha solutions. They have organizations to use an integrated system made up of software and hardware that validates both manual and automatic transfer and reach to data when it takes places between separate security classification ranges. The individual who is not the part of that network cannot see or edit the information, and only the members have access to that and transfer can take place seamlessly. This keeps the network and the systems safe by using the network safe. The tricks that can make safe computers system against the series of cybercrimes are described below.

7.6.1. Use a Full-Service Internet Security Suite The antivirus gives protection in real time from present and growing worms that consist of ransomware and viruses. It gives an opportunity to keep safe our private and financial information when we get online.

7.6.2. Use Strong Passwords The passwords have to change regularly and should not be same on different websites. It should be difficult to emulate. The password should consist of at least 10 letters, numbers, and symbols. The password management software can help the user keep your passwords locked down.

7.6.3. Keep Your Software Updated This aspect is very much important in case of operating systems and internet security software. The criminals on internet use the loopholes or flaws in the software to gain access to the system. The updated version with a code to correct decreases the chance that user will become a cybercrime target.

7.6.4. Manage Your Social Media Settings The personal and private data should be kept safe. The thieves on internet

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that are experts in social engineering can have access to the personal information with just a few data points, so people are advised to share less on internet. For example, the people post the pet name or mother home name; it is possible that they expose the answers to two common security questions.

7.6.5. Strengthen Your Home Network The experts advise to always use strong passwords and virtual private network. A VPN will encrypt all traffic leaving your devices until it arrives at its destination. The thieves if able to gain access to the device they are not able to intercept anything but encrypted data regions. The user when in public Wi-Fi network should use virtual private network whether it’s in a library, café, hotel, or airport.

7.6.6. Talk to Your Children about the Internet The children can be taught about the internet without blocking the access to communication channels. They should be aware whom to report if they are facing any type kind of online harassment, stalking, or bullying.

7.6.7. Keep Up To Date on Major Security Breaches The user while doing business with a trader finds that his account on a website has been affected by a security breach, then it should be analyzed and password should be changed immediately.

7.6.8. Take Measures to Help Protect Yourself against Identity Theft The crime of identity theft happens when someone wrongfully gains the personal data in a method that consist of fraud or deception, merely for making money. The individual is lured into giving personal information over the internet; for example, the hacker thief steals your mail to gain account information. Therefore, it is important to protect the personal information. The virtual private network helps to keep safe the information user sends and receive on internet, especially when accessing the internet on public wife. •

Know That Identity Theft Can Happen Anywhere: When one is traveling, they should have knowledge on protecting the identity. There are so many precautions one can adopt to keep us

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•

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• • •

safe from criminals from gaining access to private information on the internet. It consists of not announcing our travel plans on social media and using a virtual private network when using the internet over the hotel’s Wi-Fi network. Keep an Eye on the Kids: The people want to teach the children about internet and should also be given knowledge about stealing of identity on internet. The criminals who are involved in stealing identity generally target children because the Social Security number and credit histories regularly represent a clean record. The children information on social media should not be shared as it can fall prey to identity theft. While sharing the pictures, it is good to be alert to what to look for that compromise the child’s identity. Know What to Do if You Become a Victim: The user if feels he is victim of cybercrime, he should file the first information report with local police and, in some cases, the central agencies. Even if the crime is small, this is very much important. The report can make police alert from hackers to stop them from profit from public information in the future. If user thinks cybercriminals have stolen his identity. These are few steps one can take: The user should alert his bank and company where this fraud has happened. He should file fraud report and get his account information. Reporting identity theft to the police.

7.7. CONCEALING IDENTITIES CRYPTOCURRENCIES FUEL CYBERCRIME In Two thousand seventeen criminals have got away with money when they got access to the user data for ransom, as happened in the WannaCry and Not Petya ransomware attacks that has happened across the world. The criminals generally use cryptocurrencies like Bitcoin to demand payment and expecting to remain hidden behind a digital mask. In case of the WannaCry criminals have adopted an advanced method. There is another currency that has more complex encryption and privacy they adopted it. There are many ways in which cryptocurrency systems keep safe user anonymity. The ability to remain hidden in case of cryptocurrencies is

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increasing crime by giving thieves the chance not to reveal identity. The cryptocurrencies are developing stronger privacy protections, and it is easily programmable the problem will get worse in future.

7.7.1. Masking Criminal Identities The working of all the cryptocurrency systems is same. The people who want to send money to each other from them the transaction information is received directly by computers. The information is recorded and stored in public accessible folder that can be read by anyone. The individual money can be tracked easily as it is stored in public ledger. The extra features like fast transaction processing or better privacy are added in Cryptocurrency By simply modifying the code. The user can hide their original identity in case of Cryptocurrency. The people transaction amounts and Bitcoin account numbers that are called as addresses are in public domain so people that don’t use Bitcoin but have knowledge can read the transaction list. This method gives more secrecy than credit cards and bank accounts and from powerful elements like governments as they try to trace money obtained by criminals. The privacy of Bitcoin attracts the users who follow the law or criminals and raises law enforcement agency like police suspicions. There is direct evidence that Bitcoin and other cryptocurrencies build the chances for tax evasion, ransomware, and black market where everything is sold selling from drugs to illegal guns. The privacy loopholes can be exploited by police that involve Bitcoin when crimes happened. The investigation is done by analyzing the series of transactions. The criminals can be tracked to systems where their true identities can be finding sometimes. The clues about criminal’s behavior can be known if this is not possible. For example, the quick study of the Bitcoin transaction series of WannaCry has shown that suffering users would not automatically receive decryption code for their ransom payments. The user is required to send the money to that unique address in order to reveal their identification. The address acts like a piece of transaction serial number. The users who are victims of WannaCry have to pay to three Bitcoin address. The police found that hackers cannot find out who have paid the money as the address is mixed in that way. The computer networks have developed now to protect users and criminals from such investigation. There is a type of shuffling called as Coin

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Shuffle++ and Tumble Bit that mixes transactions together, permitting Bitcoin users to move their money illegally and accomplish stronger privacy. There are many different new cryptocurrencies that offer very strong privacy using powerful built-in mixes. That includes Monero, Zcash, and MimbleWimble. There are many technological issues, and the difficulty and limited software support makes it difficult for people to use. The Ransomware demands the users to pay in Bitcoin. The victims can easily purchase Bitcoins in comparison to other currencies that hide hacker identities better. The hackers who have built up ransomware hopes that they can achieve their both objectives that is they can receive the money from victims in Bitcoins and then convert this illegal money into Monero to gain strong privacy. In future when privacy enabled cryptocurrencies are easy to use, but hackers who have built ransomware and other criminals will be able to bypass this two-step process.

7.7.2. Criminal Smart Contracts The ability of Cryptocurrencies is not restricted to simple money transfers. The Ethereum is included in public ledger that also records the information that which account has sent to other account though in small computer programs called smart contracts. The information that is written once in record is permanently executable. They save and send money in random complex method. The user who is on smart contract can start the task of a smart contract easily by sending it a transaction. The opportunity to manage their money in difficult and intrinsic manner that hackers can use for their benefit is offered when autonomous smart contracts are combined with anonymous cryptocurrency. For example, the money has been stolen from Ethereum contracts in an attack, and it involves more money than the largest bank robbery in the United States. The hackers are yet to be identified. The time when crime is done the user who has done will decode the added message, that contains the details written in past. The smart contracts before paying the user will check the actual details of the crime and will pay if the details are matched. The secrecy of the cryptocurrency will hide the criminal identity. The computer program can understand the information, but smart contracts cannot get authentic data from the internet about various types of crimes. Due to this reason, the criminal smart contracts have not been

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created till now. The rapid development in technology is bound to fuel crime by smart contracts, supported by continuous improvements in secrecy techniques.

7.7.3. The Hard Quest for Balance The privacy is not at all worse than other things. It is just the opposite; it is a main element of privacy-preserving systems, and essential to stop overzealousness and misuse by governments. The success of cryptocurrency is protection of privacy. The cryptocurrencies belonging to criminals can be identified which are black money as the police can use the loopholes for their benefit. The criminals at right time try to convert the Bitcoins into cash like dollar or euro then the police get alert to catch them. These methods will not work in future as strong technology will start to hide black money as privacy.

7.8. FIVE WAYS CYBER-CRIMINALS ARE TRYING TO CASH IN ON CRYPTO-CURRENCY The Cryptocurrencies value is mainly driven by criminals involved in online crime and value of currencies like Bitcoin, Ethereum, and other digital currencies have been trading high since trading by other people. The starting value of currencies is raised mainly by Dark Web transactions for drugs, people paying for ransomware attacks and money laundering for different types of criminal enterprises The five methods that cyber criminals using are described in the following sections.

7.8.1. Taking Advantage of Lax Exchange Security The online attacks will continue currency exchanges. For example, in 2015 BitStamp has declared publicly that hackers had stolen its hot wallet or operational funds. The exchanges are now more powerful in security and risk management and are now regulated by government officials, and the exchanges are now in a good position to tackle the hackers. The exchanges have now created departments responsible for security and taking risk management steps to keep safe their systems. The number of countries around the world is

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taking steps to regulate the currencies, and started studying the impact of cryptocurrencies on government improving the anti-money laundering process and other operations.”

7.8.2. Enslaving Devices to Mine Crypto-Currency The concept of using computer system simultaneously to do computer intensive work was implemented in 1999 with the introduction of Seti@home application by Berkeley Seta Research Center as a desktop application, to process of radio signals from space in search of extraterrestrial civilizations. This experiment gave birth to the idea of using computer systems of others to do work simultaneously to achieve the objectives. The bad virus software thus was created based on this concept, which transforms the compromised systems into a large distributed computer. The criminals have replicated the same method that have interest in cryptocurrency the hackers have compromised from computers to routers to phones to browsers, and illegal cryptocurrency miners have compromised the systems, infecting them with malware and programs to gain the numbers needed to build tokens in their preferred currency.

7.8.3. Virtual Pickpocketing of Insecure Wallets There has been an increase in the number of machines used for mining cryptocurrencies since 2008, and there is also the increase in malware which infects the wallets used by consumers to store the access codes needed to sign and authenticate crypto-currency transactions. The targeting of exchanges is the same as looting of banks and infecting the wallets and stealing from it is like artificial pickpocketing. The costumers in large numbers now ate also involved in mining legally using their own system, and it has seen an increase in crypto-currency values. The Cybercriminals are attempting to do mining activity on other systems and trying to steal cryptocurrency wallets from the user computer. The experts have called to kept the digital currency to be kept in offline storage a cold wallet the consumers are likely to reject it.

7.8.4. Fuelling Crime and Tax Evasion The criminals always use cryptocurrencies as they provide secrecy and have the ability to turn process into cash and these are the reason they are in love with cryptocurrencies. There is no exact data on number of illegal

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transaction, but there are proofs they exist. The research study in 2015 has found that on major sites on the Dark Web 70 percent of sales consisted of cannabis, ecstasy, and cocaine-related products with most being sold for cryptocurrency. The various government agencies are acting on the use of cryptocurrencies for money laundering and stealing of tax. For example, Japan Financial Services Agency has inform the exchanges to give up support for certain cryptocurrencies such as Monero, Zcash, and Dash as they are found to be used by criminals because of their privacy protections.

7.8.5. Targeting the Blockchain Infrastructure The Criminals have innovated various techniques to exploit the distributed ledgers, or blockchains, used by cryptocurrencies to record transactions and provide proof of work for miners. For example, the people of the group who have founded the Ethereum cryptocurrency created the Decentralized Autonomous Organization, or DAO, as a blockchain-based venture capital fund based on a smart contract. There are two major issues in the implementation of Decentralized Autonomous Organization as it permits the criminal to withdraw the estimated amount of 70 million dollar from the contract. The Decentralized Autonomous Organization permits recursive calls, and the smart contract decreased funds before updating the internal balance. In order to solve this problem, the community done a debated hard fork of the Ethereum currency and it in some manner very similar to the division of stocks that produces two different shares to each shareholder Ethereum and Ethereum Classic. In return, though attackers used a distributed denial of service attack against the currency blockchain to slow down transaction processing.

7.9. HOW CRYPTOCURRENCIES FUEL CYBERCRIMES The cryptocurrencies benefits are immense as they are coded in a way that it is difficult to emulate while easy for users to use. There is greater benefit for consumers to invest their money in some kind of cryptocurrency as cryptocurrency are not restricted by exchange rates, interest rates, and transactions charges. There are over one thousand different kinds of cryptocurrencies currently operating on internet; the cryptocurrency is not

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going anywhere. The reasons why some of the cybercriminals are more likely to use cryptocurrencies to commit the cybercrimes are

7.9.1. Cryptocurrencies Allow for Faster Transfers and Transactions The numbers of people who have to send money to different accounts and have to manage their accounts are increasingly using mobile banking services to manage their transactions and send money. The bank costumers sometimes face problems when they have to wait for funds from incoming and especially international money transfer as the bank put a waiting period on these transactions. In the case of cryptocurrency, the transaction can happen in a matter of time. The users also not have the need to deal with the exchange. The fast processing of transactions, position the cryptocurrency as the good alternative for cybercriminals to send and receive money from each other and took money from the users of their cyber scams or attacks without the difficulty of trading with currency exchanges.

7.9.2. Transactions Using Cryptocurrencies Are Irreversible The money transfer on the internet with cryptocurrency cannot be reversed unlike in the case of banks. The person who has received money can only send it back to the receiver. The costumers are advised to do cryptocurrency related transactions only with people who they knew and trust as extra caution is necessary. The costumers can get money back in case of banks as they have management and administration, but if they are scammed on internet or victims of ransomware who have to pay the ransom in cryptocurrency, it is not possible as there is no central authority to retrieve the funds. The reason why criminals like this system are decentralization.

7.9.3. Cryptocurrency Accounts Can Be Used to Conceal RealLife Identities The online wallet can be created by any person associated with the account to receive and send the cryptocurrency in very less time without the need to produce the real documents so as not to compromise the privacy. The cybercriminals have the perfect opportunity to do the crime and hide behind the veil of secrecy when doing such frauds.

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The criminals can easily dilute the trail by converting the cryptocurrency into another type of digital currency before finally deciding to converting into real currency and transferring it into a bank account. The money trail is difficult to follow as by confusing the investigators even though bank accounts can be recognized to the original person. The cryptocurrency is infamous as they are involved in aiding the crimes, and it is difficult to track the identity of cryptocurrency user hidden in transactions. The use of Cryptocurrency has increased in recent years, and its popularity has spiked as many benefits have been realized with their usage. The Cryptocurrencies are programmed in such a method that makes it difficult for general user to change the settings according to their need, which keeps transactions irreversible and the account holder’s identity secret. The criminals on internet is using cryptocurrency to hide their unauthorized activities and using it for their benefit. The crimes related to internet is costing victims millions of dollars each year; it has become the main problem for governments that are fighting with cybercriminals.

7.10. CRYPTOCURRENCIES AND THE REVOLUTION IN CYBERCRIME ECONOMICS The Cryptocurrencies and other Bitcoins have seen increase in popularity, and they are highlighted in media since the last year. The media attention on cryptocurrency is presenting it as a different form of investment and trading in Bitcoin has seen the value increasing over 2000% in 2017. There is news about the use of cryptocurrencies as the payment medium of choice on the Darknet, not much significant attention is paid to the fact that they have changed the economics of cybercrime with the effective impact on the threat from cybercriminals.

7.10.1. The History of Monetizing Hacking In the past, it is difficult to earn money from hacking as a legal business. It is easy for a hacker to get the credit card numbers from online trade web sites, changing these into cash as per need and it requires more computer skills, and it regularly exposes the hacker to real-world risk. Going back to the 1st and 2nd generation of hackers, the currency of choice within the community were lists of password and shells, zero days and exploits. The cybercrime committed to earn financial benefit is increasing as more business is moving to operate from computer system networks and internet and knowledge of hacking.

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In the past cybercriminals has applied a different type of methods to earn money from their activities: •

Espionage: The hackers attempt to steal sensitive data and then selling for profit is a very old method in the hacking community. The hackers stole the secrets and intellectual property documents from Coca-Cola and tried to sell it to Pepsi in 2006. The police were informed by Pepsi and hackers were caught and prosecuted. There are many cases in which people who have purchased the data secretly and did not inform the authorities, the organized campaign of data theft is at last discovered, as in the case in 2008 of a Greek hacker who had stolen weapons data from Dassault Aviation Company and sold them too many countries. •

Cyber Extortion: There are various ways to turn hacked information to blackmail the victim. There are companies and individuals, and everyone has a data, and they want to keep a secret, and there are secret trade pacts, proof of mistake or unethical behavior or data which they don’t want to reveal publicly. The true impact can never be realized, but it is reported in some very famous corporate cases. For example, Nokia paid millions of Euro to hackers who had stolen a digital signing key for Nokia’s Symbian OS and theft of database of customers of Domino Pizza in a breach in 2014 with the hackers seeking the money totaling of 30,000 dollars. Another method which is time tested and used previously to earn money is denial of service attacks. The process is hacker asks the money if not paid by the user then he has to face the denial of service attacks and it is very successful in case of targeting of online retailers, gaming, gambling, and media providers. If the company not agrees to pay, then they have to brace for higher financial loss and service outages. The different type of extortion nowadays is ransomware. The risk of revelation of identity is very much in case of previous methods as to how to reach the money. The electronic cash transfer and even PayPal has a sign and can be tracked, and a cash exchange requires physical interaction. •

Identity Theft and Credit Card Fraud: The early crimes committed by criminals associated with credit card fraud were so naïve, and same is in case of measures to fight theft at counter in stores. The very general method is to commit this crime is to

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order a high-value item such as a laptop to an address were the criminal know user is not at home. The criminal would then act as the owner of property, doing gardening work, to take the delivery, or a similar method. These methods are very much difficult and riddled with risk to execute, and it requires knowledge of an empty house without vigilant neighbors and of the day and time of delivery. The data of credit card is now easily available as now hackers work in an organized method and teach their methods to others so as to work like a syndicate. The easiest method to earn money from hacked credit card data is to clone this data into a blank card and then withdraw the money from ATM. This method can be applied by hacker but bank daily withdrawal limit is a condition that gives him only a small amount of available money in banks, and he has very less time. There is a great danger of being caught. For example, one of the earliest hackers who got caught operating a same modus operandi is Alberto Gonzalez. •

Wire Transfer Fraud: Another method is the theft of banking or other payment-related details, for example, PayPal or generally through social engineering or a Trojan, to afterward transfer funds from the victims account. The simplest method is by social engineering is use of email or phone to lure the user into giving the account details. The advanced cybercriminals robotize this process by using drive-by infection or phishing emails by regularly bombarding a high volume of emails before user fall for the scam. The direct attacks are difficult to implement, but the attack on the banking system have occurred. The hacking requires a high degree of correctness with the way financial transactions and the banking system work, and regularly depends on bank employee knowledge or participation.

7.10.2. The Inherent Challenges of Traditional Cybercrime Monetization Complexity and Risk These methods have four different weaknesses from the viewpoint of hackers: • •

The interaction with original world is necessary as this is required by this method to be successful; They are very much dependant on dangerous and impulsive third parties, like various countries intelligence services or hardened

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• •

criminals; The hackers need a cultured and intrinsic structure or human organization to be successful; and The last step in this series is gaining the profit and converting it into cash secretly as it is very difficult and it needs various steps to move the money. The criminal is not working independently and fully in control as it appears and the danger of getting caught is very much real while transferring the stolen money into his own hands.

7.10.3. The Role of Cryptocurrencies in the New Cybercrime Economy The various features that helps in tackling the complexity and risk tasks for turning into earning money are possessed by cryptocurrencies are: • • •

They have features of privacy; They are not regulated by any governments; They provide a similar option of purchasing value, even if they need to be changed from one cryptocurrency into another; • The system can be compromised to mine them, and they can also be stolen. These are the characteristics that make Cryptocurrencies very attractive and bring benefit to cybercriminals. The main issue that cybercriminals always face is methods to turn data into currency.

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REFERENCES 1.

Anon, (n.d.). [online] Available at: https://www.researchgate.net/ publication/326431900_The_role_of_crypto-currency_in_cybercrime (Accessed on 7 May 2019). 2. Bandakkanavar, R., (2019). Causes of Cybercrime and Preventive Measures – Krazytech. [online] Krazytech. Available at: https:// krazytech.com/technical-papers/cyber-crime (Accessed on 7 May 2019). 3. Bray, J., (2016). Anonymity, Cybercrime, and the Connection to Cryptocurrency. [online] Encompass.eku.edu. Available at: https:// encompass.eku.edu/cgi/viewcontent.cgi?article=1342&context=etd (Accessed on 7 May 2019). 4. Bug, S., (n.d.). 10 Types of Cyber Crimes... and Another 10 You’ve Never Heard of. [online] Silverbug.it. Available at: https://www. silverbug.it/blog/10-types-of-cyber-crimes...-and-another-10-youvenever-heard-of (Accessed on 7 May 2019). 5. Digit, (n.d.). The 12 Types of Cyber Crime | Chapter No. 2 | Fast track to Cyber Crime | Digit. [online] Available at: https://www.digit.in/ technology-guides/fasttrack-to-cyber-crime/the-12-types-of-cybercrime.html (Accessed on 7 May 2019). 6. Essay.ws., (n.d.). The History of Cyber Crimes Essay. [online] Available at: https://www.essay.ws/the-history-of-cyber-crimes-essay/ (Accessed on 7 May 2019). 7. Florida tech online, (n.d.). A Brief History of Cyber Crime – Florida Tech Online. [online] Available at: https://www.floridatechonline. com/blog/information-technology/a-brief-history-of-cyber-crime/ (Accessed on 7 May 2019). 8. Juels, A., & Bentov, I., (2017). By Concealing Identities, Cryptocurrencies Fuel Cybercrime. [online] The Conversation. Available at: https://theconversation.com/by-concealing-identitiescryptocurrencies-fuel-cybercrime-82282 (Accessed on 7 May 2019). 9. Lemos, R., (2018). Five Ways Cyber-Criminals are Trying to Cash in on Crypto-Currency. [online] eWEEK. Available at: https://www. eweek.com/security/five-ways-cyber-criminals-are-trying-to-cash-inon-crypto-currency (Accessed on 7 May 2019). 10. Packt Hub, (2018). The Evolution of Cybercrime | Packt Hub. [online] Available at: https://hub.packtpub.com/the-evolution-cybercrime/

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(Accessed on 7 May 2019). Penta Security Systems Inc., (2017). How Cryptocurrencies Fuel Cybercrimes. [online] Available at: https://www.pentasecurity.com/ blog/cryptocurrencies-fuel-cybercrimes/ (Accessed on 7 May 2019). Rochford, O., (2018). Cryptocurrencies and the Revolution in Cybercrime Economics | SecurityWeek.Com. [online] Securityweek. com. Available at: https://www.securityweek.com/cryptocurrenciesand-revolution-cybercrime-economics (Accessed on 7 May 2019). Rouse, M., (n.d.). What is Cybercrime? – Definition from WhatIs.com. [online] Search security. Available at: https://searchsecurity.techtarget. com/definition/cybercrime (Accessed on 7 May 2019). Sigler, K., (2018). Crypto-Jacking: How Cyber-Criminals are Exploiting the Crypto-Currency Boom. [online] Available at: https:// www.researchgate.net/publication/327773442_Crypto-jacking_ how_cyber-criminals_are_exploiting_the_crypto-currency_boom (Accessed on 7 May 2019). Techopedia.com., (n.d.). What is Cybercrime? – Definition from Techopedia. [online] Available at: https://www.techopedia.com/ definition/2387/cybercrime (Accessed on 7 May 2019).

Chapter 8

The Future of Digital Currency

CONTENTS 8.1. Introduction .................................................................................... 200 8.2. The Future With the Digital Currency .............................................. 203 8.3. How Will Digital Currencies Be Regulated? .................................... 206 8.4. Digital Currency Economy .............................................................. 210 8.5. The State of Frenzy in the Crypto World .......................................... 214 8.6. Cryptocurrencies: Yet Another Disruption ....................................... 215 8.7. Succeeding of Cryptocurrency ........................................................ 218 8.8. Future of Cryptocurrency: Why E-Commerce is the Answer ............ 222 8.9. From E-Commerce to C-Commerce ................................................ 225 8.10. Bitcoin’s Alternatives ..................................................................... 225 8.11. Conclusion ................................................................................... 227 References ............................................................................................. 228

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The future is filled with possibilities, and one possibility is that we might not have to carry paper notes in our pocket with the emerging cryptocurrency in the market currently. This statement might get true. Cryptocurrency is basically a peer to peer-based payment as well as currency system which provide money to the online services by solving a difficult mathematically induced puzzle. One of the emerging cryptocurrencies that has its name almost on every mouth of the mainstream sub-culture “Bitcoins” some are adamant over why is it the best payment system while others are arguing over why it’s not due to the fact that it is practically not answerable to any government and hackers can misuse it to take bribe or blackmail authorities in exchange for sensitive information. Some say it might be the reason for the internet-based terrorism funding. This chapter focuses on the positive aspect of the future of digital currency. It discusses Bitcoin as an emerging currency, the future aspects, and benefits it holds, the regulations it required in order to be the driving force of the future emerging countries in economic field as well as digital economy of emerging digital currency.

8.1. INTRODUCTION The future currencies or the surveys are calling it the future mine of emerging economy is the focus of the inferences of the evolution of new financial innovations, which includes and not limited to the term which is quite popular now “Cryptocurrencies” for the emerging banks. There are few issues surrounding the cryptocurrency which require an immediate attention first one is the application and transmission of monetary schemes and policies whereas the second one was financial equilibrium. This chapter will further discuss the advantages as well as disadvantages of the cryptocurrency in central banks all across the globe. While the arrival of private cryptocurrencies such as Bitcoin and blockchain has led the headlines, a wider set of variation happened by the innovations in technology are most likely to have a more deep and lasting effect on the central banks all across the globe. It is quite early to conclude about the variation of traditional concepts and methodologies of the central banks, but it sure is worth considering if the forthcoming changes into money, financial markets, and payment third parties will have significant change for the operation of central banks

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and their methods to give on key ideologies such as low-price increase and financial equilibrium. There are so many assures benefits of switching from paper or coin money to digital currency, in relation of easing some limitations on the traditional monetary schemes and policies and giving an official electronic third-party payment system. The basic mechanics of monetary policy application will not be affected by a switch from paper-based currency to cryptocurrency. Although, other technological advancements that are likely to held accountable for financial markets and institutions could have a deep effect on monetary policy applications and transmission. Emerging new technological advances including those who are sitting over nonofficial cryptocurrencies have wider access to the economic system, faster, and more efficiently verifiable settlement of the processes and payments, and lower transaction values. Domestic and cross-border payment systems are on the verge of big transformation, with main gains in speed and lowering of the transactional value on the market. The efficiency increases in normal duration from having non-centralized payment and settlement systems required to be balanced in contrary to potential technological vulnerabilities and the after effects of loss of confidence during time periods of financial issues. Various payment schemes could develop the equilibrium of overall payments system in the economy and reduce the main benefit of counterparty danger associated with the payment portals themselves. Although, more than one system despite the official backing could be variably checked in the times of crisis of confidence and serve as various nodes of risk of transmission. Non-centralized electronic payment systems are also held accountable to technological weaknesses that could have significant economic as well as financial drawback. Cryptocurrencies could work as payment systems that give equilibrium without hassling limiting private fintech technological advancements (Figure 8.1).

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Figure 8.1: Bitcoin currently emerging cryptocurrency. Source: https://farm1.staticflickr.com/344/20401933105_576c3f9bf4_b.jpg

Financial organizations, such as banks, could deal with challenges which directly attacks their business models, as a new innovation facilitate the stepping of various institutions which include decentralized mechanisms that can overtake financial intermediation and overcome information irregularities. Banks will find it rather difficult to continue devouring economic rents on some programs that cross-sponsor other schemes. The developing of new organizations and machineries could improve financial intermediation but will have significant contests in terms of regulation and financial equilibrium. A new variation of money and new modes for transporting funds within and in between economies could also have consequences for international money flows and exchange value rates. The propagation of channels for cross-nation capital flows will make it emergingly difficult for national organizations to regulate these capital movements. Developing market economies will head on faces popular risks in managing the volatility of capital regulation and exchange values, and could be held subjected to higher monetary schemes spillovers and contagion effects. These nodes are also susceptible to variation for money laundering, illegal programs and evasion of control as well as reporting requirements linked with cross-country capital flows.

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8.2. THE FUTURE WITH THE DIGITAL CURRENCY One of the emerging cryptocurrencies that is Bitcoin. Bitcoin which tanked in the year 2018, but the coming innovation in cryptocurrencies stays sparkly because progress is inevitable. That’s the statement of Travis Scher, a vice president at crypto investment company named “Digital Currency Group.” Mr. Scher has further stated in terms of cryptocurrency that the year 2019 will be unpredictable, entertaining, and volatile and that the risks emerged in the previous year 2018 crash will only lead to the course of growth. He admitted that the issues arose in related to cryptocurrencies in the year 2018 was unfortunate, but there are good reasons for optimism and disillusionment as the year 2019 has already started (Figure 8.2).

Figure 8.2: Paper money will soon be replaced by digital money. Source: https://torange.biz/photofx/173/8/digital-money-background-173379. jpg

According to Scher who have previously an experience in law firms that the crypto community has been addressing the key risks and setbacks it faced but is on the course to be the major power in the future. Scher outlined the steps the industry must take to boost its credibility and move toward mainstream acceptance.

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8.2.1. The Industry Must Engage with Regulators It is important for the industry to deal with lawmakers to get appropriate regulations, doing so will regulate the industry’s validity and hence, advance normal adoption. Regulation in variation is the most important topics in the crypto-world presently. How the regulators decide to deal with crypto assets and crypto companies will have huge prediction over how the cryptocurrency will flourish. As usual, news reported, this is why Digital Currency Group, Coinbase, and Circle launched a pro-crypto lobbying group in September in the year 2018. This displays that the crypto-firms is serious about working with legislators to protect consumers, and thereby, earn mainstream acceptance (Figure 8.3).

Figure 8.3: Digital currency is what might run the future economy of developing countries.

Source: https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcS9hBha IFrmfkRtKC69WyDzEoZvwjp4L_QFNrL8FxW6Q9OGqRBHHw The industry wants and should be proactively and efficiently made the situation that this industry can be an influential force for the best. Jeremy Allaire, the co-founder of Circle a cryptocurrency with a United States dollars three billion valuation, stated that: “We have been very active with Congress, with policymakers.”

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8.2.2. Prepare for More Layoffs and Shutdowns It has also been expected to see more layoffs, company closures, and bankruptcies in 2019. “Crypto companies need to tighten their belts and prepare for a long winter,” Scher warned. “Token sales will be hard to execute not just because of uncertain regulation, but because liquidity has dried up.” The crypto funds that raised hundreds of millions at the start of a bubble dealing horrific losses in the year 2018, and apart from those will shutter this year. Scher said this alliance is inevitable because the industry grew too fast amid the market panic, so a period of standardization is here. And that’s not all a bad thing.

8.2.3. Industry Needs a ‘Darwinian Evolution’ While some businesses will close, the good ones will get even better, Scher projected. “A little Darwinian evolution is just what the industry needs,” Scher observed. “The easy money in the year 2017 and early 2018 bred a lack of discipline and…straight-up arrogance.” Organizations with weak foundations will get washed out because of the crypto emergence in the year 2019. But those that are well-run and missiondriven will end up even stronger and better. One example of a high-flying business that was involuntary to downsize was blockchain startup ‘ConsenSys.’ After increasing its workforce in the year 2018, the company shortly laid off as much as sixty percent of its manpower in December of the year 2018. ConsenSys founder Joseph Lubin, the co-founder of Ethereum; said ConsenSys had to devour underachieving projects to cut values after the group got too big and heavy. ConsenSys CEO Joseph Lubin on Layoffs: ‘Sky’s not falling, future is very bright’ a quick-witted reply to the future of the company. Ethereum co-founder Joseph Lubin stated the future of the crypto industry is so bright he has to wear shades and called a down to the current bear market. “Peeking into 2019, if you could see that.”

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8.2.4. Prepare for Entry of Institutional Money Scher stated that the broadcasting hype around the expected arrival of institutional investors is not a gimmick. “This is very real — companies like Goldman Sachs, Fidelity, and ICE are publicly making big moves in the space,”—Scher stated. Despite high-finance have made violent inroads into crypto, and now Facebook is rumored to be launching a ‘stable coin’ their own cryptocurrency It has been stated by the surveyors that a deep change creeps on the boundary for the crypto market, which is why the current and temporary Crypto Winter does not fade away still. Scher stated that one of the best parts of crypto’s watershed in the year 2019 will be laughing in the faces of the gloating naysayers when they’re forced to eat their words. “The change-averse corporate executives who have derided crypto will be embarrassed when their dismissive quotes resurface down the line,” Scher promised.

8.3. HOW WILL DIGITAL CURRENCIES BE REGULATED? Blockchain innovative technology has a brighter future than the other digital currencies in general and especially better than Bitcoin, judging from the responses of investors, it’s also clear that a debate of this subject could reach beyond the grasp of the said question, which involves the United States in a discussion about central banking systems. Various supporters of the prodigy that is cryptocurrency have stated that digital currency will be the longest running horse and maybe the driving factor of the future economies of the emerging countries all across the globe. Mostly because it doesn’t require middlemen or a regulatory centralized body to regulate its transitional efficiency. Bitcoins and other cryptocurrency are throughout having same value, and it doesn’t change with borders or the change in region. They are basically providing interesting asset class to store value (Figure 8.4).

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Figure 8.4: Light coin another competitor in the future cryptocurrency race. Source: https://farm1.staticflickr.com/975/41899078372_a63915cdf7_b.jpg

Observer and researcher in cryptocurrencies have suggested a specific use of the asset class when they noticed that a possible use of Bitcoin could be “Hedge funds betting on sovereign debt defaults.” Bitcoin is the most secured financial web in the world. The infrastructure that circulates transactions is distributed all around the globe and not prone to any attack as stated by a famous Cryptocurrency researcher. They go on to suggest that it is most likely that the nation that is emerging from a terrible leadership will more likely choose to adopt a cryptocurrency instead of relying on the central banking system which varies around the world. Central banking is but a specialized form of central planning a variation from current insane, superstitious, or regional belief in official money may happen sooner than later. While there are some researchers, on the other hand, other surveyors stated that digital currencies are something which isn’t regulated by one authority; hence, they could be used for market manipulation or a heinous online crime. Bitcoin does not have a safe future as a currency. Because of the cost of operating sufficient computers to collectively document every single transaction. When digital mining becomes too expensive, the system will hang. Another market researcher suggested that such currencies arise in times of need that is when the official currency is scarce or like in recent years when India practiced demonetization, and they disappear

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when the government implemented a better alternative. Many agreed with Dan shypua that “The blockchain technology underpinning Bitcoin is the best part in the cryptocurrency fiasco. This technological advancement will transport many aspects of life in an optimistic way” Prithwis Mukherjee a famous market researcher suggested that this is already implemented in a scheme to normalize the payment of goods and service tax in a country like India. While another researcher stated that of all the greatest interest to them is the blockchain spreading ledger which enables a secure transaction, high effectiveness, and reduce the requirement for middlemen that add limited value. Despite being the biggest feather in the cap which is its decentralization. It is also a curse for them as in availability of centralized authority the question arises is who will look after its distribution as well as spreading across the globe and how will it be regulated throughout. Jamie Dimon, CEO of JP Morgan Chase, recently labeled the leading digital currency, Bitcoin, a “fraud,” comparing it to the seventieth-century tulip bulb mania and adding that he would fire any employee caught trading it. But change of hands occur on October 2, the Wall Street Journal stated that rival Goldman Sachs is considering trading in cryptocurrencies, probably the first Wall Street firm to do so. How should we think about the future course of a currency that is manufactured (“mined”) and valued in the private economy as opposed to being manufactured on a meticulous basis by governmental authorities through a technologically advance, supposedly secure, and private system of numerical codes that enables possessor of the currency to finish transactions off the books and out of the sight of government regulators? The number of such currencies is spreading like wildfire for their use in numerous ways. Some are being held by a significant number of buyers and sellers as caring for transacting processes. They are now even being produced as funding devices such as ICOs or initial coin offerings (ICOs) by organizations avoiding more public initial public offerings which are abbreviated as IPOs. The organizations simply produce and sell transferable digital currencies that can be used to buy future goods or services provided by the startup, possibly on more good terms than in the real market. According to one report, one hundred and forty startups have raised over two billion United States dollars in this manner so far, this current year. In one case, thirty-five million United States Dollars was raised in less than thirty seconds.

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The most greatly developed and emerging cryptocurrency is the Bitcoin, the love child of an ingenious and secretive tech programmer but it’s more than just a work of a guy behind the computer. The programmer developed a complex algorithm which basically concludes to mining the currency and keeping track of the ownership of each valued currency ownership on computers spreading across the vast nature of our planet using single blockchain software. It can also be used for currency speculation, with the value of Bitcoin fluctuating at least as wildly on digital currency exchanges as the goods used in the trade. In recent time the value of a Bitcoin fluctuated over range of one thousand nine hundred to four thousand seven hundred United States dollars organizations accept it in transactions, all time machines (ATMs) which regulate or transfer Bitcoin into actual currency are being setup all around the world so much so that in the United States there is one hundred and fifty locations. But it has it cons too; recently hackers recently demanded it in payment; otherwise, they will leak significant sensitive information to the enemy state or the whole world to feed on. Cryptocurrency is a boon for the people who work on the outskirt of legal system around the globe. Cryptocurrencies like Bitcoin is mined in “Farms” that, according to one statement verify other users’ transactions by solving a complex mathematical puzzle in return for their services they get Bitcoin as a payment. Presently, the biggest “Miner” Bitcoin is an organization containing twenty-five thousand computers and serviced on all day all week basis by 50 employees in Dallas banner in Inner Mongolia, Republic of China. In fact, more than two-thirds of the value is mined, and much of it is traded on exchanges in China. Nervous Chinese leaders have threatened to shut down the exchanges, causing the value of the currency to drop about thirty percent quickly. As comedians often ask, “What could possibly go wrong?” But the same question could probably have been implemented about little capitals that linked in hedging. The world is not even clever enough to call it a “Hedge Fund,” since the answer to the question is the future of currency is really cryptocurrency then yes. Yes, it is. Various users have already gained from investing in this, but usually, most of the countries have it blocked since it is a peer-to-peer-based system with no disregard of being answerable to any authority hence it is more so an illegal currency in some parts of the world.

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8.4. DIGITAL CURRENCY ECONOMY The most frequent as well as the most divisive question that emerges is about the future of the cryptocurrencies. Spectacular profits of over thirty hundred percent in the year 2017 followed by a spectacular maintainability in the year 2018 make this as a standing out asset. On one side the libertarians and techies herald the arrival of economic freedom from the establishment government, central banks, and large financial organizations. On the other hand, the kingpins of finance criticize the space: Jamie Dimon called advocators of digital currencies “stupid,” while Ray Dalio warned against “a bubble” (Figure 8.5).

Figure 8.5: Future currency will derive the future economies. Source:https://encrypted-tbn0.gstatic.com/ i m a g e s ? q = t b n : A N d 9 G c T m p 1 4 B Q X F k g 3 m TuLk5Smb8XZYyoyikX8FVM6qpAeflzdBAAYvPQ

Cryptocurrency can be stated better by the prism of disruption. In the book “Asset Managers Prepare to Be Disrupted,” authors discuss that the investment industry has changed in a very small manner, while the other industries have gone through a dramatic disruption. Factors such as technological advancements, social change, and political constructs often drive variation in unexpected ways; present viewpoint of traditional finance towards cryptocurrency reminds us of past infamous

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quotes from the development when faced with disruption. In 1977, Ken Olson, creator, and CEO of Digital Equipment Corp, famously stated, “There is no reason for any individual to have a computer in his home,” which has turn out to be a warning against the blind spot that prevents many emerging business leaders from seeing disruption. Developing digital currency scenario has all the characterizations of past disruptors: Non-linear technology innovations make it reliable to completely reenvision an entire trend. Technology is often used to automate already existing processes or to generate efficiency, such as using the internet to order digital video discs. True disruption, although, occurs when new innovations enables radically different business models to be emerged. The development of Netflix demonstrates that: streaming video gratified is a disruptive technology that has impacted the ingesting of digital video discs video content. Similarly, the arrival of blockchain technology radicalized the exchange processes, thus disintermediating large financial organizations and governments. This permitted for the discovery of Bitcoin, a currency that is not sponsored by any government or any underlying asset and is “mined” through solving complex computational puzzles. An emerging social mainstream culture is need for change. A new generation of Avant-guard intellects goes against the status quo and hold disruption first. During the internet starting phase, Silicon Valley became the structure of an entirely new culture of impudent techies who were not afraid to question everything and attempt bold moves and out of the box things. Presently, a technological advancements generation that cares very little about what the recognized titans of our industry think constitutes “currency” has completely redefined how currency is produced, swapped, and stored. It seems as though the only thing one needs for a currency to exist is buyers and sellers who want to transfer value between each other. The mainstream culture profits momentum taking the development by surprise; who thought that Bitcoin would be worth over ten thousand United States dollars. Initially, repugnant business welfares are attracted to the space, damagingly impacting the trustworthiness of the new technological innovations. In the case of the horse itself the Internet, the early applicant of users was for gambling and illegal purposes, which led some stockholders to

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stay away from the industry and shrug off its requirement. Similarly, today digital currencies allow for capital exchange between individuals that is resistant to government control, thus allowing possible money filtering. Questions now arising are digital currencies a scam or the holy grail of financial liberalization? If past disruptive inventions serve as an example of what to assume from digital currencies, then the answer is likely neither. The three phases of disruption that can be observed through the history of expertise are likely to play out in the digital currency space: •

Creation: The novelty grows quickly and moves from the periphery to the center of everyone’s consideration generating great profits for early investors. The current digital currency boom is similar to the internet boom of the year 1990: As a young technology enthusiast, people can remember valuing internet start-ups based on “eyeballs.” At the time, neither revenues nor profits were considered estimate pointers. Similarly, presently it is disbelieving that new digital currencies are exploding up with little corporate rational and inflated valuation. Digital currencies are likely at the end of this stage. •

Retraction: The elation grows to an unmaintainable level, and the dream sequence stops. The estimate correction inspires the nay-sayers, but also shifts through the trustworthy business models from the unmaintainable ones. It is likely that the dot com bust of the year two thousand would have its parallel in the digital currency field, but the alteration will likely be feasible for digital assets in the long duration. • Institutionalization: This is the final and most profound stage of disruption where the best of novelty embraces established best practices and common sense. During the internet boom, internet businesses re-attention on profit growth and the bottom line, while emerging business models linked with brick-and-mortar businesses. The last stage of disruption started the new industry giants such as Google, Amazon, and Netflix among others. The same is likely to occur with digital currencies as stayers embrace regulation, self-regulation, and implement answerability to how initial coin contribution proceeds are used and what ROI investors are observing for. If digital currencies complete the cycle of disruption, the businesses created through the three stages of disruption will most likely change the

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economic system as we know it, creating new base of capital transfers, investing, economies, and financing. The new companies are likely to give Private Equity, and Venture Capital organizations, as well as banks and trading regulations, a run for their value of money, but digital currencies might begin to emerge in both retail and institutional scenarios. In normal language, we can say that cryptocurrencies are digital currencies, which is not centralized as well as vividly private. One of the most popular one is Bitcoin, which is obviously talked of the town as compared to other cryptos like Ethereum, Tether or Monero. Which is nonsurprisingly falls under the top ten cryptos of the world, but they are not as popular as Bitcoin. The reason behind the popularity of Bitcoin is the users. It has been blown out after 2010, since nobody even knew about this in the year previously. Similarly, there are other cryptocurrencies like Ethereum and Ripple, which puts their position alongside Bitcoin, which are obviously important members of the whole game, henceforth the increase in the usage is been justifiable. One of the leading giants of carpool and cab service application Uber Technologies Inc, was came into play in the year 2010 when people were very adamant to avail cab service. But as we can observe now, Uber has gathered approximately more than seventeen million users around the globe. Considering the United States one out of three people in the states have Uber installed on their phone. People are usually non-excited about the transformation, but when they can get used to the fact that the transformation can repair their ease of access and how it is going to revolutionize their daily life, they get habitual in no time. Same as like, since the boom of internet in the year 1991, it has created a disruption in the lives of the people, so much so that nobody will live without internet as it has become like oxygen making life possible on this very earth for some. Cryptocurrencies are going through the same initial stage has been discussed with the example of Uber and the internet; it has been taking off with nothing and is possible on their way to achieve everything with more than twenty-one million users and counting by the second. As people are being aware about the technology behind it, that is blockchain and the pros, that is started to drive them towards using virtual currencies (VCs).

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Recently, Adena Friedman, the CEO of NASDAQ stated that “cryptocurrency merits an opening to find a maintainable future in our developing economy.” She stated that there can be two outcomes, considering the current situation. Either there would be more use cases in the upcoming days, with maintainable commercial development, like the internet. Or, it does not get succeed in getting adopted, like the Segway. Presently, Vitalik Buterin, the founder of Ethereum – the world’s second largest cryptocurrency has created a stir in a show, by stating that Blockchain industry was about to hit a “ceiling.” He later clarified his controversial statement on social media, by posting that “No room for development,” he meant that there is no scope for a thousand multiplied price hike. The current crypto market is even smaller than United States dollar of two hundred billion which would mean that by thousand multiplied growth the market cap should hit two hundred trillion United States dollars, which basically means that seventy percent of the world’s wealth will fast forward towards crypto-based assets. The report backs began labeling Buterin as a doom-monger and pessimist, who thought the halcyon days of the entire cryptocurrency industry had come and gone. He further posted on social media that: “If you speak to the average educated person at this point, they probably might have heard of blockchain at least once. There is no opportunity for yet another one thousand times growth in anything in the space anymore.”

8.5. THE STATE OF FRENZY IN THE CRYPTO WORLD Vitalik added a close counter criticism of Tron creator Justin sun, who basically committed to his Cryptocurrency development prediction. Vitalik’s statement made the crypto space senseless as everybody is calling it refuting this statement, especially Justin sun- the founder of TRON. Justin sun was rather a quick wit to answer to Vitalik’s taunt on his character of hyping up Tron every now and then. Sun responded suggesting he basically believes that the cryptocurrency market will sure to hit united states dollar of ten trillion market cap before the big companies in the competition which is apple and Amazon which has already crossed the mark of a trillion American dollar valuation presently (Figure 8.6).

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Figure 8.6: Cryptocurrency network.

Source:https://cdn.pixabay.com/photo/2017/12/14/14/23/blockchain-3019120_960_720.png Changpeng Zhao is not the only business frontrunner to have refuted Vitalik Buterin on the problem of the future development trajectory of crypto. Joseph Lubin, who co-created Ethereum along with Buterin, also went on record saying that he doesn’t agree with his ex-colleague. He stated: “I still don’t agree with this. I will say ‘crypto will absolutely grow a thousand times and more!’ Just reaching the United States Dollar market cap will give it closer to a thousand times, (which is just one currency with severely restricted use case), and the offshoots market is very much bigger.”

8.6. CRYPTOCURRENCIES: YET ANOTHER DISRUPTION Let’s have an observation at some of the forecasts given by the market traders or fanatics: Venture capital investor- Tim Draper has foretold that the total cryptocurrency market capitalization will hit eighty United States dollar trillion in the next

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fifteen years. Various other big names in the business organization like JP Morgan’s CIO Lori Beer articulated at a press conference in Buenos Aires that blockchain will take over the current existing technology. In the coming years, he also stated that JP Morgan uses blockchain technology to simplify the payment processes and store customers’ data related to KYC which is the short form used in place of know your customer (Figure 8.7).

Figure 8.7: Poster depicting the ease of using cryptocurrency than paper currency.

S o u rc e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 7 / 1 2 / 2 3 / 1 0 / 1 0 / B i t coin-3035013_960_720.jpg Other famous researchers and businessmen like Kim Dotcom, an entrepreneur, and Megaupload founder stated his belief in Bitcoin over fiat currency telling fans straight up to “Buy cryptocurrency,” and stated to avoid dollars as it is going to become irrelevant. The author of the once said to be the biggest business and motivational book “Rich Dad, Poor Dad,” Robert Kiyosaki stated his concern about the fact that cryptocurrency will, in the end, will replace United States dollars. The CEO of the world’s biggest stock exchange which is “NYSE” stated that Bitcoin has the outlook to be the world’s ‘First worldwide Currency,’ and he’s putting his firm’s weight behind a determined plan to make it happen practically. Now let us have our attention towards the use cases and how the Institutions are making sure they consider cryptocurrencies before they invest:

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8.6.1. Cryptocurrency Future Worldwide Companies like IBM, CITI, CLS, and Barclays formed a relationship to launch blockchain app stores for banks. Ledger Connect, which is a distributed ledger technology abbreviated as DLT platform is the end result of cooperation between foreign exchange settlement provider CLS, enterprise software company IBM, and nine financial companies which includes big names such as Citigroup and Barclays. ‘CyClean’ which is a Singapore based blockchain startup is launching a convoy of blockchain enabled electric vehicles that would mine crypto as users travel. The company supposed to minimize the carbon emission and to reward people in order to commit to them. Samsung SDS. The information technology part of the Samsung firm, presently announced that it would make use its Nextledger blockchain stage to build an export customs clearance system for Korea custom service, vigorously. Iran has recently stated that they will start treating cryptocurrency mining as a firm. This regulation comes after the hiked pressure on the country forced by a variation in economic sanctions projected by the United States of America. Tech goliaths Alibaba and IBM are competing for the top place on a new list that ranks global units by the number of blockchain-related copyrights filed to date. China’s Alibaba only just closures first place, having filed a total of 90 blockchain-related blatant applications, whereas IBM has to date funneled a total of 89. In third place is the payment-based MasterCard with 80 filings, followed by Bank of America, with as much as 53. The original ‘Builderium” project, with its origin in Switzerland, is being emerged as a global platform for making contracts and measuring groups to bring the assistance of the digital economy to the rising construction market. The company expects the United States construction market will reach United States dollar Seven hundred and seventy-three billion in the near upcoming years as the spot is global, hence the customer is not partial to regional or national markets. The Australian government has settled a two point two five United States million dollars to the Maintainable Sugar Project, led by the Queensland Cane Growers Organization, used to road the attribution of sugar supplies to Australia – the project known as Smart Cane Best Management Practice which is the full form used in place of BMP.

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The New York-based medical school founded by Mount Sinai Hospital has inaugurated a new research center either its attention on blockchain as well its applications in healthcare which investigations the application of artificial intelligence, robotics, genomic sequencing, sensors, and wearable devices in medicine as well as the different other fields. These use cases and forecasts say a lot about the upcoming years of cryptocurrencies in the year 2019 and even beyond that. The blockchain which is the technology backbone of cryptocurrencies space is growing rapidly than ever and cannot be stopped. As these firms and technologies established, their real-world use cases will hike manifold, more than what we observe today, downgrading some hypothetical market elements to crush it in the actual performance, utility, form, and function of the next-generation of the internet.

8.7. SUCCEEDING OF CRYPTOCURRENCY Cryptocurrency has already got a good amount of huge audience and shows us different ways in which we can make use the underlying blockchain functionality to develop current systems. The cryptocurrency boom, bubble, and revolution have been indicated many times, but what could one actually have hopes from cryptocurrency moving into the year 2019, having observed its advantages and variations through the past few years (Figure 8.8).

Figure 8.8: Bitcoin the longest running cryptocurrency.

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S o u rc e : h t t p s : / / c d n . p i x a b a y. c o m / p h o t o / 2 0 1 7 / 0 7 / 1 7 / 11 / 0 5 / B i t coin-2512026_960_720.jpg

8.7.1. Institutional Money Predicted to Enter the Market Some have forecasted that the next few years will observe a big variation in crypto as Institutional money enters the playfield. This states that those with the big enough investments to individually take the revolution in front. Henceforth, the number of daily cryptocurrencies interactions is up year on year, which shows development, despite some stating the waning taste of investors needed to get involved. Moreover, there is the likelihood that cryptocurrency will be drifted on the Nasdaq, which would additional add trustworthiness to blockchain and its uses as an alternative to current financial decisions. But some forecast that all that crypto needs are a verified exchange traded fund which is a full form used in place of ETF. An ETF would certainly make it informal for people to invest in Bitcoin, but there still needs to be the request to want to capitalize in crypto, which some say may not routinely be generated with an account.

8.7.2. Ripple Will Take Over Some also predicted that in the year 2019, people are going to observe a paradigm change in the leading edge behind cryptocurrency. Stated, Bitcoin started the chain reaction and allowed the normal users to understand the complex nature of a cryptocurrency and of blockchain in overall. Some also state that Ethereum stated to this and make that there could be possibilities beyond the paper money. But most all debate that Ripple really projected the involvement for blockchain, especially with its smart agreements that are being looked into by the adores and Commerce International Merchant Bankers. Henceforth, it observed that ripple may even cover swift payments for cross-border payment transactions, as has been stated in the crypto sphere for a while. Ripple may even attract more institutional investors not basically as a cryptocurrency for a time being. Ripple may even attract more institutional investors not basically as a cryptocurrency, but as end formulation of blockchain in a more practical surrounding.

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8.7.3. But Cryptocurrency Faced with Crypto-Critics Although, there are critics of cryptocurrency and its requirement in the upcoming years. Some states that instability of Bitcoin that too, a common censure of blockchain, which seems to be short, sighted given the instability of many other units, for instance, the famous beverage coffee which may reduce the coin boom worthless. Indeed, it is achievable that Bitcoin might lose its value as other options gain value and take the market share that would have been in other case reserved for Bitcoin. This option combines with the impression that cryptocurrency is just the twitch of what blockchain functionality proposals and that Bitcoin as one example has less of a multifaceted structure of blockchain and so, may propose less in the future. Ripple, Ethereum, and even Stellar Lumens are in advance gaining popularity, which could relegate and outshine Bitcoin. An example in other fields could be Kodak’s market share of standard film camera devices as compared to its slice of the move towards a digital market, which had left Kodak behind. An unambiguous warning for crypto is that they’re supposed to be more than just its financial branch.

8.7.4. Crypto Needs to Offer More As Ripple’s success as an ‘added value’ crypto projected us, there needs to be something more than that of the cryptocurrency that can show its feasibility to whether the herd of critics. As such more forecast that the future will project that blockchain and their uses will fast forward and be taken up by larger organizations as a way of observing the water metaphorically stating. The main idea and application of blockchain have already been observed and implemented in the music industry and in purchasing of digital pets, so once applied to different systems could be used in ticketing or for that matter in anything that need a unique identifier that needs a high amount of security as well as safety for both the user and the vendor. Cryptocurrency is a curiosity case study in that there is no example for what may occur to it. Some contend that it will follow the dot-com effervesce, but others propose that the internet is the greatest creation of the century. So, despite some sites collapsing and being terminated, the internet, on the entire, has made better lives and complete things incredibly easier for people all around the globe. It also been observed that cryptocurrency forecasts have also come to naught before, so while in other aspects the forecasts are more precursors

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to what might occur, in this field they are condensed as just that, forecasts for what would occur. Cryptocurrency is still in its crawling stage in terms of reliability in the wider financial sector, but the fact that so much focus is being put to it can only be affirming step, especially for the rookie blockchain functionality. Cryptocurrencies go through some of the filters which comprise the fact that digital wealth can be destructed by a computer error or non-physical drive may be altered or maybe gets corrupted through technological welfare means over the time. What will be difficult to overcome is the general paradox that bedevils cryptocurrencies the more mainstream acceptable they become, the more regulation and government scrutiny they are more likely to seek attention, which corrodes the fundamental evidence for the very existence. While the number of wholesalers who receive cryptocurrencies has progressively hiked, they are still very much in the underground. For cryptocurrencies to achieve a status of more extensively used, they have to first attain widespread acceptance among customers. However, their relative intricacy associated to conservative currencies will likely discourage most people, but for the technically skilled. A cryptocurrency that shoots for the moon in becoming mainstream financial system may have to satisfy widely divergent fact. It would require being mathematically intricate in order to avoid fraud and hacker attacks but easy for the customers to understand. Noncentralized but with variant customers safeguard and safety as well as to preserve user anonymity without being able to conduit for tax evasion, money laundering, and other nefarious doings. Since these are a difficult standard to satisfy, is it really needed that most popular cryptocurrency in the coming years’ time could have attributes that happen between heavily dealt fiat currencies and present currencies? While that does look feasible, there is a little intricating that as a heading cryptocurrency presently, Bitcoin’s success in dealing with the difficulties it heads on faces may determine the future of other cryptocurrencies in the years ahead. If one is thinking about capitalizing in cryptocurrencies, it may be greatest to treat your “investment” in exactly the same way one would treat any other highly hypothetical scheme. In simpler words, identify that one runs the risk of trailing most of your asset, if not all of it. As stated earlier in the chapter, a cryptocurrency has no inherent value apart from what a

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purchaser is willing to pay for it at a point in stretch. This turns out to be very vulnerable to hiked price changes, which basically increases the danger of loss for an investor. Bitcoin, for consideration, hiked from United States dollars of two hundred and sixty to about one hundred and thirty dollars within a period of six hours on the date of April 11 in the year 2013. If one cannot stomach the kind of instability, look elsewhere for the capital that is better suited to the investor. While estimation continues to be intensely alienated about the qualities of Bitcoin as an asset – groups point to its incomplete supply and rising usage as value motorists, while critics see it as just additional hypothetical bubble – this is one argument that a traditional saver would do fine in order to avoid.

8.8. FUTURE OF CRYPTOCURRENCY: WHY E-COMMERCE IS THE ANSWER Ever since Bitcoin come out ten years ago, people have only been curious about one question. ‘Which is how can one make use of it?’ Some players have expected the cryptocurrencies to undergo fiat money till now. Some societal ‘cool’ people call it money for the geeks, and that it would never get the status of the mainstream. Now ten years on, the developing ideas lies somewhere in the slits of the whole cryptocurrency ideas. Bitcoins have since flourished, and many other currencies like altcoins have emerged to be the success in the market, but the future of the cryptocurrency is still undecided. Even though most of the people still don’t make use of the Bitcoin in everyday life, the number of stuffs one can buy with crypto is on its boom. According to the ‘CoinMap,’ around fourteen thousand four hundred and eighteen revenues all around the globe currently accept Bitcoin. Obviously, that’s not enough to reach the normal yield point of the mainstream adoption. Maybe it can never be, due to Bitcoin’s small outreach and availability as well as unequal spreading of the assets (Figure 8.9).

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Figure 8.9: Cryptocurrencies could be used for illegal activities.

Source:https://cdn.pixabay.com/photo/2018/02/01/17/15/dark3123582_960_720.jpg We require a new currency with better features and a new usage that best hysterics cryptocurrency. To identify that coin, let’s observe the industry that maybe works best with crypto which is said to be e-commerce. In the year 2017, e-retail auctions accounted for ten-point two percent of all retail sales all around the world. This number is expected to reach seventeen-point five percent by the year 2021. As one can observe, the possibility of e-commerce is immense, and it’s increasing almost every day. But how does this all get fit into the shining future of cryptocurrency one can ask. Even though e-commerce is developing, the outdated global financial system shows the biggest challenge to its spreading. Presently, banks act as inbetweeners between the buyers and the sellers over the internet. That is not a giant issue for user who shop online frequently. Although, there are many people who could take advantage from the online shopping but couldn’t deal with the hassle of opening a bank account. Considering the people from third-world countries where banking systems are still underdeveloped and non-reliable as well as handicapped as compared to the developed countries. According to some analytical estimates, there are more than two billion people around the globe who comes under this category. Cryptocurrency might connect those people with the sector of

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e-commerce. Despite all, they just need a bare minimum of an internet connection just to get a push. There is no list of requirements needed for downloading a wallet and using digital coins as a means of payment. One doesn’t even require filling in their personal information. There are other sequential benefits, of course. Cryptocurrencies main objective is to replace the main hub authority such as banks, eliminating the requirement as well as the need of intermediate regulatory authority. That will greatly normalize the shopping process as well as the reduction fees for all the concerned. Some of the benefits of decentralized currency are discussed below: •

No mediators so that banks cannot enforce their rules and regulations. • A higher level of independence for wholesalers. • No blocked accounts. • No middleman charges, unlike on e-commerce sites like eBay or Etsy. • A superior level of confidentiality for clienteles. • International dealings deprived of exchange charges. • A new level of defense against fake and deceitful acquisitions. We require a developing platform that makes buyers and sellers to exchange with each other with the help of cryptocurrency. But not just any cryptocurrency. As it has been discussed before in this chapter, we need a new coin with features specially considered for e-commerce. In simpler words, we require a coin fashioned specifically for as well as embedded into this platform. That is possible only with a cryptocurrency intended from the ground up to protect purchasers. So, when one observes or hears that any other shopping e-commerce internet retailer is falling under blockchain business than that’s not the solution. Despite the developed e-commerce emergence with the cryptocurrency sounds the answer it is not feasible in the long run. That isn’t the upcoming need of cryptocurrency people are expecting to be. Only by generating a decentralized marketplace with its own entrenched coin can one really make noteworthy change.

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8.9. FROM E-COMMERCE TO C-COMMERCE The idea of another player named ‘Safex’ is to turn e-commerce into c-commerce, where c in stylized way stands for crypto. Over the coming years, experts predict e-retail sales will overcome the target of thirteen-point seven percent of the global retail manufacturing. With the introduction of Safex’s market, this fraction could be even greater. While c-commerce will certainly take a percentage of current e-commerce sales, we can also imagine it to reach new clienteles who have been unable to shop over the internet until now. There are no two doubts about that cryptocurrency is going to a significant effect on the e-commerce market, especially with the schemes like Safex. People are yet to observe all the advantages crypto coins can deliver to online shopping. But the one thing is for sure that the future of cryptocurrency depends on online platforms which are specifically designed to make trade easier for both buyers and sellers. Bitcoin’s most benefits of the non-centralized and transaction anonymity have also made it a favored currency for a base of illegal processes which include money laundering, drug peddling, smuggling, and weapons obtaining. This has grabbed the attention of powerful regulatory and other governmental regulations such as the Financial Crimes Enforcement Network (FinCEN), the SEC, and even the FBI and Department of Homeland Security (DHS). In March of the year 2013, FinCEN delivered rules that definite VC exchanges and managers as money service businesses, transporting them within the realm of administrative regulation. In May that year, the DHS froze on the account of ‘Mt. Gox’ the largest Bitcoin argument that was held at Wells Fargo, claiming that it breaks anti-money laundering laws. And in the month of August, New York’s Department of Financial Services issued summonses to twenty-two developing payment corporations, many of which touched or even surpassed Bitcoin, asking about their measures to prevent money laundering and ensure consumer protection.

8.10. BITCOIN’S ALTERNATIVES Despite the upcoming problems, Bitcoin’s success and growing visibility

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since its launch has come out in a number of companies revealing alternative cryptocurrencies such as: •

Litecoin: it is stated as Bitcoin’s leading competitor at present, and it is intended for processing lesser transactions faster. It was founded in the month of October in the year 2011 as stated by the leading observer and founder Charles Lee “a coin that is silver to Bitcoin’s gold.” Unlike the heavy computer and machinery horsepower required for Bitcoin mining, Litecoin can be mined by a normal desktop or laptop computer. Litecoin’s extreme limit is eighty-four million – four times Bitcoin’s twenty-one -million limit – and it has a deal processing time of about two point five minutes, about one-fourth that of falls under Bitcoin (Figure 8.10).

Figure 8.10: Poster depicting altcoins as a dark marketplace. Source: https://farm5.staticflickr.com/4545/37893325124_dcb3e00299_b.jpg

•

Ripple: It was launched by a firm named ‘Open Coin,’ it is a company founded by technology entrepreneur Chris Larsen in 2012. Like Bitcoin, Ripple is both a cryptocurrency and a payment system. The currency branch is XRP, which has a mathematical foundation similar to the crypto leader Bitcoin. The payment system makes the exchange of funds in any currency to another user on the ripple network within seconds, in answer to Bitcoin transactions, which can take as long as ten minutes to complete.

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MintChip: Unusual like most cryptocurrencies, MintChip is actually the production of a government company, to be specific the ‘Royal Canadian Mint.’ MintChip is a smartcard that has electronic value and can exchange it securely from one siliconbased chip to another. Like Bitcoin, MintChip does not need personal identification; unlike Bitcoin, it is sponsored by a physical currency like the Canadian dollar.

8.11. CONCLUSION The development of Bitcoin has gassed a worldwide debate about its future and that of the other cryptocurrencies. Despite Bitcoin’s present issues, its success since its 2009 stage has sparked the creation of different cryptocurrencies such as Litecoin, Ripple, and MintChip. A cryptocurrency that aspires to turn into part of the usual financial system would have to agree with divergent standards. While that option looks mobile, there is not an iota of doubt that Bitcoin’s success or failure in exchange with the issues it faces may figure out the fortunes of other cryptocurrencies in the coming years hopefully.

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Chang, S., (2019). Here’s Why Bitcoin’s Future is so Bright: Digital Currency Group Exec. [online] CCN. Available at: https://www.ccn. com/heres-why-Bitcoins-future-is-so-bright-digital-currency-groupexec (Accessed on 7 May 2019). Coinswitch.co., (2019). How Does the Future of Cryptocurrencies Look in 2019 | Expert Opinions & Forecast. [online] Available at: https:// coinswitch.co/news/how-does-the-future-of-cryptocurrencies-look-in2019-expert-opinions-and-forecast (Accessed on 7 May 2019). Heskett, J. L., (2017). Do Bitcoin, and Digital Currency Have a Future? [online] HBS working knowledge. Available at: https://hbswk. hbs.edu/item/do-Bitcoin-and-digital-currency-have-a-future?cid=wkrss (Accessed on 7 May 2019). Investopedia., (2013). The Future of Cryptocurrency. [online] Available at: https://www.investopedia.com/articles/forex/091013/ future-cryptocurrency.asp (Accessed on 7 May 2019). Prasad, E., (2018). The Future of Money: Digital Currency. [online] Brookings. Available at: https://www.brookings.edu/testimonies/thefuture-of-money-digital-currency/ (Accessed on 7 May 2019). Reyes, S., (2018). What Does the Future Look Like for Cryptocurrency?. [online] FinTech futures. Available at: https://www.bankingtech. com/2018/11/what-does-the-future-look-like-for-cryptocurrency/ (Accessed on 7 May 2019). Stefanova, K., (2018). Digital Currency Economy: What is the Future of Your Bitcoins? [online] Forbes.com. Available at: https://www.forbes. com/sites/katinastefanova/2018/04/09/digital-currency-economywhat-is-the-future-of-your-Bitcoins/#618dec615e10 (Accessed on 7 May 2019). Stephens, R., (2018). The Future of Cryptocurrency: Why E-Commerce is the Answer. [online] Medium. Available at: https://medium.com/ swlh/the-future-of-cryptocurrency-why-e-commerce-is-the-answer822e62ba12f5 (Accessed on 7 May 2019).

INDEX

A Accept payments 116 All time machines (ATMs) 209 Anti-Money Laundering Directive (AMLD) 163 Application Specific Integrated Circuits (ASIC) 89 Arrival of cryptocurrencies 52, 54, 56, 57 Attention of cyber-criminals 15

B Beneficiary identification 3

C Central Bank Digital (CBDC) 4 Centralized system 20 Collecting money 57 Common agreement 98 Common pressures 98

Currency

Communication 177, 178, 182, 185 Complete mining process 88 Complex mathematical problem 127 Complex phenomenon 53 Computational resources 26 Computer program 181, 188 Computer system 180, 183, 190, 193 Continuous recording 96, 97 Conventional monetary system 126 Crumbling infrastructure 174 Crypto companies 204 Cryptocurrency 120, 122, 123, 124, 125, 126, 127, 128, 129, 130, 131, 132, 133, 134, 135, 136, 138, 139, 141, 142, 143, 145 Cryptocurrency community 149 Cryptocurrency Exchanges 130, 131, 133 Cryptographic 127 Crypto-money 2, 3, 4, 6, 11, 14, 21,

230

Alternative Currencies in the Digital Age

24 Cultural segment 46 Current financial 83 Current monetary system 84 Customary financial intermediaries 41

D Decentralized Exchanges function 133 Department of Homeland Security (DHS) 225 Digital cryptocurrency 14 Digital currencies complete 212 Digital economy 152, 155 Digital money 2, 3, 7, 17 Digital money ecosystem 71 Digital payments 16 Digital signature 112, 114, 115 Digital technology 103 Digital transactions 103 Digital transaction space 17 Direct Trading Platforms 133 Dissimilar versions 125 Distributed digital currency 150 Distributed digital technologies 150 Dominant economic system 43, 44 Double expenditure 53

E Economic crisis 148 Economic resources 45, 46 Economic system 138 Emerging cryptocurrency 200, 202, 209 Ensure security concerns 97 Equilibrium of overall payments system 201

F Financial institutions renewed skepticism 151 Financial interconnections 42 Financial intermediation 202 Financial market 138, 141, 142, 143 Financial markets system 175 Financial organization 202 Foreign currency 157 Fundamental qualities 4 Future currencies 200

G Global Digital Asset Exchange (GDAX) 135 Global economy 50, 52, 55, 56, 60 Gold-backed digitized 14 Graphical Processing Units (GPUs) 89

H High-intensity nature 125 Human phenomenon 46

I Immense intrinsic value 73 Information technology 217 Information technology market 179 Infrastructure 48 Initial coin contribution 212 Initial coin offerings (ICOs) 208 Institutional change gain momentum 86

L Ledger technology change 40 Litecoin-based digital currency 12

Index

M Mainstream financial system 221 Micropayment system 15 Missed deadlines 178 Monetary architecture 71 Monetary policy 148, 150, 151, 153, 154, 155, 159, 166, 168, 171

N National organization 202 National System of Electronic Payment 157 Network protocol 5

O Online anonymity 175 Over the Counter (OTC) 133

P Peer-to-peer network architecture 90 Personal information 175, 178, 179, 180, 181, 185 Physical object 74 Physical ownership 3 Postponements 125 Potential disturbance 40 Practical application 103 Practical possibility 123 Principle chain 96, 97 Private organization 178 Produce markets 8 Protecting personal information online 175 Public databases 113

R Resourcefulness 176

231

Retail payment system 41 Ripple is a real-time gross settlement system (RTGS) 8

S Securities and Exchange Commission (SEC) 58 Self-regulating mechanism 74 Semi-anonymous medium 149 Something positive 46 Spectacular maintainability 210 Steal information 175, 184 Storing illegal information 179 Suspicious activities happening 180 Systematic approach 44

T Technical development 155 Technological advancements 201, 210, 211 Trade transaction 98 Transaction anonymity 225 Transactions per second (TPS) 102, 170 Transparency 96, 98, 101, 102, 103, 104, 105, 107, 111, 112

U Unique chemical composition 74

V Venture Capital organizations 213 Virtual currencies (VCs) 156, 213

W Working of businesses 176