Paper Sample: Main Ideas and Applications of Cryptocurrencies

A cryptocurrency is a new form of digital money and asset-based on a distributed network and accessed by many computers. The Cryptocurrency network exists in a decentralized manner and thus exists and operates away from the government's interference. The virtual form of Cryptocurrency and the decentralization of the networks associated with them help avoid the issues related to double spending of money or counterfeiting (Chen et al., 2017). Any central bank or recognized authority does not issue cryptocurrencies, and therefore the possibility of government interference is reduced to the minimum. Additionally, the fact that any central authority does not issue the Cryptocurrencies means that the government cannot manipulate them, resulting in a situation whereby Cryptocurrency enjoys freedom from government interference.

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Cryptocurrency systems allow for secure online payments using denominations known as tokens, representing a given amount of money. The payments and the tokens used for online payments when using Cryptocurrency are captured using ledger entries recognized by the computer system of the particular Cryptocurrency. Cryptocurrency security is assured through the use of algorithms of encryptions and advanced techniques of cryptography, which result in secure and non-traceable payments via the platforms provided. The most recognized and valuable Cryptocurrency is bitcoin. There are, however, thousands of available Cryptocurrencies that have different functions, values, and specifications (Caporale et al., 2018). The majority of the Cryptocurrencies have cloned bitcoin's functioning, although some have been developed from scratch, hence providing unique features that are different from those found in bitcoin. The first Cryptocurrency, bitcoin, was launched in 2009 by a group known as Satoshi Nakamoto, with over 18 million bitcoin worth over $146 billion having been distributed to date. Although bitcoin represents over 68% of Cryptocurrencies, there are other different Cryptocurrencies such as litecoin, etherum, and EOS.

The use of Cryptocurrencies was developed for the use and application of the military. The government wanted to control the use of Cryptocurrency at some point. However, the rights were protected by categorizing the use of Cryptocurrency to the freedom of speech found in the Bill of Rights. The functionality of Cryptocurrencies is based on blockchain technology, which helps in keeping online ledgers from all the transactions conducted by all the users (Caporale et al., 2018). Through the ledgers kept by the Cryptocurrency structure, a data structure is established, thus providing the security needed for Cryptocurrencies' setup and running. The use of blockchain technology, similar to the one used in Cryptocurrency, provides the potential for other functions such as crowdfunding and voting online.

Functions of Cryptocurrencies

Cryptocurrencies are a medium of exchange of finances through cryptography to achieve secure and anonymous transactions via the different online platforms provided for other Cryptocurrencies. The use of Cryptocurrencies is used as an alternative for conventional currencies and therefore offer digital forms of money for secure exchanges. The decentralized nature of Cryptocurrencies provides for the use of blockchain and databases, which play the role of a decentralized ledger (Seitim, 2018). Blockchain systems are essential in the establishment of a different way through which the financial systems work. There are, however, differences in the functioning and legality of the Cryptocurrencies, resulting in a situation where a government body does not control the Cryptocurrencies.

The first function of Cryptocurrencies is to offer alternatives for the use of money. Cryptocurrencies are an online version of money. Therefore, the users can pay for different services and products online through the use of Cryptocurrency by transactions that allow the use of Cryptocurrency as a form of exchange. Therefore, the use of Cryptocurrency is convenient to the users since they do not have to use conventional forms of payment, which require the use of physical money or bank transactions. More importantly, due to the universal acceptance and similar value for Cryptocurrency across all platforms, online payments have been made easier since there is no need to convert money to pay for goods or services in other countries.

The use of blockchain technology in Cryptocurrency is also important in establishing different ways of sending and receiving money online. One of the ways is through the use of Cryptocurrency in crowdfunding activities. The use of Cryptocurrency provides a platform through which transparency can be used since the payments are verified immediately. They are done, providing the transacting parties with the platform to transfer money instantly. Decentralization offered by Cryptocurrency's use provides for the expansion and growth of businesses (Seitim, 2018). The use of blockchain technology offers the businesses' ability to handle the business activities they undertake effortlessly and more swiftly, hence improving the quality of the customers' services. Finally, through the use of Cryptocurrency, the possibility of fraud is reduced. The online Cryptocurrency platforms provide ways through which double-spending and the storage of immutability information. Additionally, the instances of trading partners being given cheques which bounce will be reduced due to the instant verification of transactions. This way, the businesses will enjoy the possibility of reducing the losses experienced due to the existence of unscrupulous business partners.

Benefits of Using Cryptocurrency

Cryptocurrency's first advantage is the one-to-one transactions, which reduce the need for extra costs associated with the bureaucracies associated with other forms of transactions. The brokers, financial agents, and legal representatives in business transactions contribute to the additional expenses related to executing a business transaction, which results in other costs to the transaction, hence reducing the profits to be made by either party (Trushina, 2019). The direct transfer of funds to the business transaction that one is paying for helps cut out the middlemen and reduces the dealings' expenses. The straightforward nature of transactions facilitated by the use of Cryptocurrency, therefore, allows for the clarity of audit reports since there are no hidden costs associated with the transfers which may not have been captured, hence leading to accounting for all the organizations'

e use of Cryptocurrency facilitates the transfer of assets. The blockchain system used by Cryptocurrenthatsembles, an extensive property rights database, allows for the successful transfer of assets from the seller to the buyer with the exchange of money used to facilitate the transfer being securely exchanged between the two partners. Confidentiality is assured through Cryptocurrency's use since the senders only use a user ID, which can hide their real identities. This way, forums such as crowdfunding platforms facilitate the transfer of funds without the contributors' identities being divulged to the receivers and other users (Trushina, 2019). Additionally, the possibility of account or identity theft after undertaking different transactions is reduced, since the Cryptocurrency accounts do not display the real credentials of the account holders. The encryptions used in the accounts also provide for the transactions' safety and are difficult to hack compared to bank accounts.

The transaction fees are associated with the use of Cicantly holders' real credentials compared to banks' use. The amounts spent in facilitating the transactions and withdrawals are lower than those associated with banks. Therefore the holders will save on the costs associated with maintaining such accounts such as account maintenance fees. The fact that Cryptocurrency trading is web-based, the system facilitates international trade since the value of the Cryptocurrency is standard in all the nations and therefore reduces the possibility of inflated exchange rates, hence reducing the quantities to be exchanged on account of differences in currency values (Trushina, 2019). Therefore, when one transacts using Cryptocurrency, they are likelier to be sure of how much commodities they are to get from the exchange and make the necessary preparations for the products' receipt.

Disadvantages of Using Cryptocurrency

The first disadvantage of using Cryptocurrency is the scalability of the transactions. The number of people supporting the use of Cryptocurrency is still lower than those who prefer the use of bank-sanctioned means of payment, such as the use of visa cards. Therefore, while the use of Cryptocurrency is encouraged, there are challenges in terms of the possibility of one trading party preferring traditional means of payment. In contrast, the other prefers the use of Cryptocurrency. This, therefore, means that the use of Cryptocurrency depends on the willingness of the trading parties to use the platforms, which is difficult to find at the moment (Trushina, 2019). The majority of those against the use of Cryptocurrency in business transactions are skeptical that Cryptocurrency is not a legal tender and therefore are afraid of being victims of fraud.

While the encryption allows for the security of the transactions carried out on Cryptocurrency platforms, there is a possibility of the platforms experiencing security breaches through access by hackers. Hackers may access the databases of the Cryptocurrency platforms and transfer the funds into their accounts. This fear is the reason why many people are skeptical of the use of Cryptocurrency, especially with the fact that there are no physical offices where one can report their complaints or receive refunds for losses experienced (Trushina, 2019). The lack of inherent values on the Cryptocurrencies leads to the lack of reliability of their use. The lack of a governing body to control the functions of the currency is among the reasons why the prices can get too high on one day and fall in the next, which poses the threat of losses being experienced should the prices fall and never recover.

The lack of supervision for the use of Cryptocurrencies is another issue associated with its use. Any government body does not regulate the crypto platforms, and therefore the platforms can be used by unscrupulous individuals to commit crimes. Cryptocurrency platforms have been accused of facilitating crime by providing platforms for illegal transactions and acquisitions. A new trend in crime is Cryptocurrencies' use to purchase weapons to be used in criminal or terrorist attacks. Human trafficking has also been facilitated by using Cryptocurrency since the transactions are anonymous(Trushina, 2019). Additionally, people who earn their money through crime can hide the proceeds in Cryptocurrency platforms, which the government has no access to, resulting in public funds loss. Therefore, physical bank systems provide the oversight needed for the transfer of funds in a supervised manner, thereby creating accountability for the people concerned.

References

Caporale, G. M., Gil-Alana, L., & Plastun, A. (2018). Persistence in the cryptocurrency market. Research in International Business and Finance, 46, 141-148.

Chuen, D. L. K., Guo, L., & Wang, Y. (2017). Cryptocurrency: A new investment opportunity?. The Journal of Alternative Investments, 20(3), 16-40.

Seitim, A. Y. (2016). OVERVIEW OF BITCOIN CRYPTOCURRENCY AND ITS COMPLIANCE WITH KEY MONEY FUNCTIONS. Aktual'ni Problemy Ekonomiky= Actual Problems in E...