Cryptocurrencies remain highly controversial; while some tout it as “the next internet,” others view these digital currencies as “evil.” At their simplest, they are the newest fintech fad; yet at their most complex, they’re a revolutionary technology challenging the political and social underpinnings of society. We will try to elaborately examine the crypto currency market along with the accounting and regulatory, and privacy issues surrounding the space.

 

What Is a Cryptocurrency and Why Use It?

 

Cryptocurrencies are digital assets that use cryptography, an encryption technique, for security. Cryptocurrencies are primarily used to buy and sell goods and services, though some newer cryptocurrencies also function to provide a set of rules or obligations for its holders—something we will discuss later. They possess no intrinsic value in that they are not redeemable for another commodity, such as gold. Unlike traditional currency, they are not issued by a central authority and are not considered legal tender.

 

At this point, use of cryptocurrencies is largely limited to “early adopters.” For scale, there are around 10 million Bitcoin holders worldwide, with around half holding Bitcoin purely for investment purposes.

PSEUDONYMITY (NEAR ANONYMITY)

Buying goods and services with cryptocurrencies takes place online and does not require disclosure of identities. However, a common misconception about cryptocurrencies is that they guarantee completely anonymous transactions. What they offer is pseudonymity, which is a near-anonymous state. They allow consumers to complete purchases without providing personal information to merchants. However, from a law enforcement perspective, a transaction can be traced back to a person or entity. Still, amid rising concerns of identity theft and privacy, cryptocurrencies can offer advantages to users.

PEER-TO-PEER PURCHASING

One of the biggest benefits of cryptocurrencies is that they do not involve financial institution intermediaries. For merchants, the lack of a “middleman” lowers transaction costs. For consumers, there’s a tremendous advantage if the financial system is hacked or if the user does not trust the traditional system. For comparison’s sake, if a bank’s database were hacked or damaged, the bank would be completely reliant on its backups to restore any missing information. With cryptocurrencies, even if a portion were compromised, the remaining portions would continue to be able to confirm transactions.

 

Cryptocurrency Exchanges

 

Cryptocurrency exchanges are websites where individuals can buy, sell, or exchange cryptocurrencies for other digital currency or traditional currency. The exchanges can convert cryptocurrencies into major government-backed currencies, and can convert cryptocurrencies into other cryptocurrencies. Some of the largest exchanges include Binance, Kraken, Coinbase etc. which can trade more than $100 million (equivalent) per day. Almost every exchange is subject to government anti-money laundering regulations, and customers are required to provide proof of identity when opening an account.

Types of Cryptocurrencies

 

There are over 1,000 cryptocurrencies in existence right now with over 600 having market cap of $100,000.

While Bitcoin’s price has generally been following upward trend, in early 2018, Bitcoin’s price fell sharply, dipping below $8,000 as news of tougher regulation from China and South Korea surfaced. Bitcoin continued to soar post covid with interest rates at an all-time low and excess capital in the market. crypto trading made quite a few millionaires and demand of bitcoin reached an all-time high. The price went up to $69000 before crashing down to $36000 in Q1 of 2022 due to an anticipation of interest rate hike by the FED.