A Critical Analysis of the Emergence and Development of Crypto Currencies and Their Impact on Economic Activities

This study analyzes the emergence and development of crypto currencies and their impact on economic activities, including the positive and negative effects on accounting and the global economy. The study aims to evaluate the significance of crypto currencies within the market, identify the future development of crypto currencies, and analyze the positive and negative impact of crypto currency in the economic activities, and how it will affect accountancy. The research questions that this research paper intends to answer are: Do crypto currencies affect the activities occurring in the economy? Does crypto currency have further development in future? Whether crypto currencies will pose threaten to the banks and financial institutions in the future? Does crypto currency disrupt the global economy?

MSc Accounting and Management
August 2018
A CRITICAL ANALYSIS OF THE EMERGENCE AND
DEVELOPMENT OF CRYPTO CURRENCIES AND
HOW IT AFFECT ECONOMIC ACTIVITIES
STUDENT NAME: TANZIM HUSSAIN
STUDENT ID: 170837345
SUPERVISOR: DR SUKI SIAN
Date of submission: 28/08/18

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ACKNOWLEDGEMENTS
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CONTENTS
CHAPTER 1: INTRODUCTION.................................................................................................................5
1.1 INTRODUCTION...............................................................................................................................5
1.2 BACKGROUND.................................................................................................................................5
1.3 AIM OF THE RESEARCH....................................................................................................................7
1.4 OBJECTIVES......................................................................................................................................7
1.5 RESEARCH PROBLEM.......................................................................................................................8
1.6 RATIONALE OF THE CURRENT STUDY..............................................................................................9
CHAPTER 2: LITERATURE REVIEW.......................................................................................................10
2.1 INTRODUCTION.............................................................................................................................10
2.2 THEORETICAL FRAMEWORK..........................................................................................................10
2.3 EMERGENCE AND DEVELOPMENT OF CRYPTO CURRENCY............................................................13
2.4 THE POSITIVE AND NEGATIVE IMPACTS OF CRYPTO CURRENCY ON ECONOMIC ACTIVITIES........14
CHAPTER 3: RESEARCH METHODOLOGY...........................................................................................19
3.1 INTRODUCTION.............................................................................................................................19
3.2 RESEARCH DESIGN.........................................................................................................................19
3.3 RESEARCH APPROACH...................................................................................................................19
3.4 RESEARCH METHOD......................................................................................................................20
3.5 DATA COLLECTION.........................................................................................................................20
CHAPTER 4: DATA ANALYSIS AND INTERPRETATION.........................................................................22
4.1 INTRODUCTION.............................................................................................................................22
4.2 QUALITATIVE ANALYSIS OF THE ACQUIRED DATA.........................................................................22
POSITIVE EFFECTS OF CRYPTO CURRENCY...........................................................................................22
NEGATIVE EFFECTS OF CRYPTO CURRENCY.........................................................................................24
IMPACTS OF IDENTIFIED FACTORS OF CRYPTO CURRENCY.................................................................25
STUDY OF DIFFERENT CASES ON GOVERNMENT REGULATION...........................................................26
CHAPTER 5: EFFECTS OF CRYPTO CURRENCY ON ACCOUNTING........................................................31
5.1 POSITIVE EFFECTS OF CRYPTO CURRENCY ON ACCOUNTING........................................................31
5.2 NEGATIVE EFFECTS OF CRYPTO CURRENCY ON ACCOUNTING......................................................33
CHAPTER 6: DOES CRYPTO CURRENCY HAVE A FURTHER DEVELOPMENT AND DOES IT POSE A
THREAT TO FINANCIAL INSTITUTIONS IN THE FUTURE?....................................................................34
CHAPTER 7: CONCLUSION AND RECOMMENDATION........................................................................38
CHAPTER 8: REFERENCES....................................................................................................................40
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ABSTRACT
In recent years, cryptocurrencies have become a highly deliberated topic within the finance
industry. Essentially, a crypto currency is a digital or virtual currency that utilizes
cryptography for the purpose of security. A crypto currency is an encrypted digital currency,
which uses a decentralised ledger, called block chain which keeps a record of transactions
and validates them (The Quint, 2018). Crypto currency has been difficult to counterfeit due to
the nature of its security aspect. The most defining aspect of crypto currency and possibly the
most enthralling factor is primarily its organic character. Crypto currency is not issued or
controlled by any central government authority, therefore making it supposedly immune to
intervention or else manipulation by any central governing authority. This study will
elucidate the various facets of crypto currencies, beginning with their evolution and early
development, various challenges, threats, benefits, limitations and their prospects in the
upcoming period. The study will also explore the emergence and future development of
crypto currency, the research will look into how crypto currency has affected the accounting
world and how it affects accountants, highlighting the way crypto currency has exerted an
impact on the global economy. The World Economic Forum suggests that 10% of the Gross
Domestic Product (GDP) will be stored on block chain related technology by 2025. This
therefore shows an indication of how transactions are documented and interconnects will
completely change within this period. The evolution of money requires accountants of the
future to educate themselves about crypto currencies, as it is expected to dictate transactions
of the future. Although the evolution of crypto currency is having an impact, it was also
hereby concluded that it is complicated to forecast the future prospect of crypto currencies as
there remains a lot to be done, particularly in the area of formal convention and set of laws.
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CHAPTER 1: INTRODUCTION
1.1 INTRODUCTION
The current introductory section of the study elucidates in detail about the background of the
topic, the aim of studying the impact of innovative technologies and the emergence of virtual
communities generating new modes of transactions as well as the change of methods within
accounting on the global economy. The intention of analysing these virtual communities that
generate and distribute their own disbursement medium for exchange of both goods as well as
services will be presented and discussed throughout. In that way, it can deliver a mode of
transaction, in which emissions or else centrally authorised monetary units are not engaged.
The study will also present research objectives and questions framed for understanding the
nature and the degrees of influence of virtual currencies (indicating crypto currencies) on
economic actions. This study will analyse crypto currencies from the perspective of economic
and legal factors together, showing its advantages as well as its limitations.
1.2 BACKGROUND
The notion of electronic currency can be dated back to 1983, when a research paper by David
Chaum introduced the idea of electronic money. In 1990, David Chaum founded Digi Cash,
which was an electronic cash company (Chaum, 1982). Digi Cash was one of the earliest
methods of electronic payment. It required user software in order to withdraw notes from a
bank and elect precise encrypted keys before it could be directed to the receiver. Bitcoin,
which is currently the top crypto currency in the market, was introduced in 2009 by a
pseudonymous developer named Satoshi Nakamoto, Bitcoin can be considered as the first
ever victorious decentralized crypto currency. Crypto currency is in fact a virtual method of
coinage that works as a typical legal tender, helping users to deliver disbursement for goods
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as well as services, liberated from a central authority. Lee et al (2018) assert that crypto
currencies depend on digital transmission of information, using cryptographic mechanisms to
ensure legitimate, exclusive transactions. In essence, Bitcoin took the virtual market for coins
one stage ahead, decentralising this currency and liberating the same from hierarchical
structures of authority and power. Litecoin was first offered during the autumn season of the
year 2011, which gained a humble achievement of getting the highest market cap of crypto
currency only second to Bitcoin until it was surpassed by Ripple during 2014 (Decourt et al,
2017). Essentially, Litecoin customized protocols of Bitcoin, enhancing speed of transaction
with the thought that it might prove to be more suitable for regular transactions. Ripple was
introduced in 2013, which established a completely exclusive model utilised by electronic
currency and presently preserves second uppermost capitalisation of specific market of
roughly $255 million. The crypto currency sector is comprised of more than 550 coins with
diverse based as well as trade volume users. Owing to increasing volatility, capitalisation in
the market of crypto currency business alters radically which is estimated to be higher than
$3.5 billion. However, virtual currency reflects around 88% of entire market capitalisation
(Bouri et al. 2017). In essence, there are diverse and at the same time confronting alternatives
as regards prospects to crypto currencies overall and especially Bitcoin. However, the ones
with more libertarian opinions regarding life are optimistic and embrace the system of crypto
currency. On the other hand, there are authors, instigators, economists along with scholars
from this particular field who are not keenly interested in the usage of crypto currency
especially in the scheme of disbursements as well as financial transactions (Guo and Li,
2017). They also assert that crypto currencies are extremely volatile and can be utilised for
the purpose of money laundering and financing other illegal actions.
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1.3 AIM OF THE RESEARCH
The aim of the current research is to analytically assess the influence of crypto currency on
different economic actions. Fundamentally, this research hopes to concentrate on the
materialisation and development of crypto currency in the current and upcoming period. In
addition, this research study aims to examine the way in which crypto currency has exerted
an influence in the arena of accountancy, and the way the same can affect diverse
accountants. Another purpose of this research study is to highlight the critical role crypto
currency plays a part in the global economy. Analysis of the reports declared by the World
Economic Forum reveals that 10% of the global GDP can be maintained and stored on block
chain associated technology by the year 2025 (Lehner et al. 2017). This will reflect if the
manner in which different transactions are registered and interlinked can be entirely altered
within a specified period. The ‘evolution of money’ which has been changing for decades,
calls for adequate education and training of future accountants on Bitcoin along with other
crypto currencies, since it is anticipated to dominate various business transactions of the
upcoming period (Bunjaku et al, 2017). In itself, it can hereby be observed that this
occupation also required evolution and skills of adaptation over the coming years.
Accountants and auditors have therefore begun work of auditing business transactions within
the block chain. In effect, crypto currency has been extensively put to use over the past few
years for buying goods and services as well as for investment purposes (D’ Alfonso et al.
2016). The evolution of crypto currency will affect accountancy, as accountants are expected
to help clients understand its reporting and tax ramifications.
1.4 OBJECTIVES
The objectives of this research study will be:
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1. To evaluate the significance of crypto currencies within the market.
2. To identify the future development of crypto currencies.
3. To analyse the positive and negative impact of crypto currency in the economic
activities, and how it will affect accountancy.
The research questions that this research paper intends to answer are:
1. Do crypto currencies affect the activities occurring in the economy?
2. Does crypto currency have further development in future?
3. Whether crypto currencies will pose threaten to the banks and financial institutions in
the future?
4. Does crypto currency disrupt the global economy?
1.5 RESEARCH PROBLEM
In general, there are different as well as challenging perspectives regarding the effect of
crypto currencies on economic actions and the future of crypto currencies. There are
libertarian opinions of life that are generally optimistic and embrace this system of crypto
currency. Various authors, economists and scholars of this field are not keen on the usage of
crypto currency in the system of disbursement and pecuniary transactions. The optimistic
opinion concerning usage is supported by the fact that they make it easier to transfer finances
between two diverse parties in a particular transaction. In essence, these transactions are
assisted by means of public as well as private key purposes for security. Fundamentally,
transfers of finance are carried out with minimal processing fees, permitting users to avert the
steep fees charged by the majority of banks. On the other hand, opponents of this virtual
community of crypto currency state that crypto currencies are extremely volatile and can be
utilised for money laundering and to finance other illegal activites. Therefore, the current
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study intends to evaluate pessimistic and optimistic views on crypto currencies and the
influence of the same on economic actions based an analysis of advantages as well as
disadvantages of the same.
1.6 RATIONALE OF THE CURRENT STUDY
The current study can help in analysing the use of crypto currency in general and evaluate the
benefits along with the drawbacks of the same. Study of advantages as well as disadvantages
can help in analysing the nature of the influence of the same taking place in the economy
both nationally as well as internationally. In addition, the study can help in analysing whether
the future holds a certain place for this virtual currency as a significant currency solution or
whether it shows the way to financial fraud that can lead to downfall of the financial system.
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CHAPTER 2: LITERATURE REVIEW
2.1 INTRODUCTION
More recently, crypto currency has demanded a larger in presence and has increased in
popularity; however, there are already a substantial number of literary works and empirically
supported evidence regarding the emergence, evolution, significance as well as the
limitations of the usage of the same in the global economic scenario. A structured literature
review is undertaken for overview of the state of field of academic research on the topic of
cryptocurrencies. Several philosophies have been developed and highlighted in the context of
cryptocurrencies. Since the introduction of Bitcoin in 2009, there have since been numerous
private crypto currencies. Concerning the technology of digitized assets, the first application
is the introduction of crypto currencies. This section further highlights and includes
discussion on the development and emergence of cryptocurrencies along with the advantages
and disadvantages and how such digitised assets development has affected the economy. This
section of the report aims to carry out an extensive review of the already existing literatures
available within this domain. Analysis illustrates how the development of crypto currencies
affects the economy in different aspects.
2.2 THEORETICAL FRAMEWORK
Many scholars have defined the term ‘crypto currency’ in innumerable ways from different
perspectives. However, the most comprehensive definition of the term is given by Anderson
(2017), who explains the term as the new type of virtual currency or medium of exchange in
the contemporary global economy with the vision of decreasing the fraudulent and unfair
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activities in the financial market. A crypto currency uses cryptography to secure and verify
transactions as well as to control the creation of the new units of a particular crypto currency.
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Over the course of the short life span that crypto currencies have had, there has been
unprecedented and erratic evolvement of its market. There has been development of more
than 550 cryptocurrencies, which has contributed to the considerable amount of confusion on
the subject. Regardless, the contribution of academic research on crypto currencies are done
by exposing drawbacks and limitations payment system of crypto currencies. The journey of
Bitcoin began in January 2009, it was the first crypto currency to be decentralised, shortly
followed by Namecoin which emerged in 2011. Public ledge is the common element in the
system of crypto currency (Gamble, 2017). Crypto currency is the system of virtual coinage
that enabled users to make the virtual payment of goods and services that does not account
for central trotted authority. A unique and legitimate transaction is enable by crypto
currencies by relying on digital information transformation utilising the methods of
cryptography. A large clone of Bitcoin and other currencies forms majority of the
cryptocurrencies and it incorporates different parameters value. It can be seen that there has
been a three times increase in the total market capitalisation of crypto currencies since 2016,
making the value reach $25 billion in 2017 (Elender et al. 2017).
FIGURE 1: Total market capitalization of crypto currency:
(Source: Schmidt 2017)
Figure 1 shows that the more innovative crypto currencies contribute a growing share while a
relatively low share is allocated to duplications known as Altcoins. After Bitcoin, the largest
crypto currencies comprised of Dash, Ethereum, Ripple, Monero and Litecoin. The most
dominant crypto currency in terms of market capitalisation has been Bitcoin with other crypto
currencies attempting to capture the market share. Use of crypto currencies is facilitated by
the emergence of companies and the multitude of projects for building infrastructure and
mainstream users. Ecosystem of crypto currencies composed of traditional finance, public
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block chains and several economic sectors. Such currencies are provided with additional
value due to the existence of such services as the native currencies and means for block
chains are done in context of broader economy (Teo 2015). The industry of crypto currencies
comprised of important groups industry sectors such as exchange, wallet, payment and
mining.
CURRENCY (T0P 5) MARKET CAPITALISATION % MARKET SHARE
BITCOIN $7,736,903,762 93.9%
LITECOIN $214,884,256 2.6%
RIPPLE $43,280,764 0.5%
NXT $37,224,992 0.5%
DARKCOIN $25,769,200 0.3%
TOTAL (OF 462 ALT-COINS) $8,238,034,710 100%
FIGURE 2: Market capitalization of top five crypto currencies:
(Source: MacDonald et al. 2016)
2.3 EMERGENCE AND DEVELOPMENT OF CRYPTO
CURRENCY
Historically, it was the military, intelligence agencies and secret services that made use of
crypto currencies for protecting the leakage of classified information. Such currencies would
help in facilitating quick and easy of money transfer across regions at both international and
domestic levels without the involvement of any government regulations. Bitcoin is a virtual
currency that is not backed up by any sovereign obligation and or any physical commodities
and involves the combination of peer to peer protocol and cryptographic protection for
witness settlements (Brenig et al. 2015). The main idea behind crypto currencies is to
provide users with an easier way to transfer funds globally while maintaining privacy and
keeping transaction costs at low. At the same time, users are not dependent on any third
parties. The essential factor to cryptocurrencies is the concept of proof of work since the
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integrity of block chain is guaranteed by it. For transactions, any singular transactions in a
block cannot be changed by an attacker and in such areas all the work is required to be
submitted again. The difficulty is finding the block increase, if there is an increase in the
network of processing power. Therefore, the difficulty will be higher along with the safety
level if the network has more processing power. These computation efforts are rewarded
because of an increased reliance on miners.
2.4 THE POSITIVE AND NEGATIVE IMPACTS OF CRYPTO
CURRENCY ON ECONOMIC ACTIVITIES
The main purpose of crypto currencies in terms of economy develop a means of exchange
that does not rely on the third party financial intermediaries. However, the basic function of
money is arguably failed to be satisfied by such a creation. The increased popularity of the
crypto currencies is encouraged by genuine economic considerations that include
irreversibility of transactions, lower costs of transactions, pseudonymous payments and the
potential to attract a new customer base. It has been identified by some research bodies that
the main factor motivating use of crypto currencies is the demand side for lower cost of
transaction. For the smaller businesses, the most important factor is transaction cost. For
instance, it is indicated by high credit feeds that more than half of business in America do not
accept credit card payment. In relation to international transaction, lower cost transaction is a
particular advantage provided by such currencies. Factors such as concerns over physical
transportation cost are responsible for unconstrained crypto currencies resulting from
ubiquitous nature of the internet. It was indicated by some early analysis that compared to
transaction costs of 8% to 9% for traditional remitters; using Bitcoin for international
remittances had transaction costs of 1% , approximately indicating that there is a
considerable reduction in cost (Bouoiyour et al. 2016).
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FIGURE 3: Transaction cost
(Source: Haddad and Hornuf 2016)
Recent data on Bitcoin suggests that its transaction fees are ranging from 0.31% to 0.35% of
total transaction value. Many new business platforms have been sparked by the advent of
crypto currencies along with a few forms of peer to peer economic activities. Since the
central banking system does not control the currency, a number of concerns regarding tax
evasion and law enforcement capabilities are raised because of the anonymity, offered to
users (Bainchetti et al. 2017).
The payments systems of banks are the main functions of crypto currencies that enable
exchange of money between counter parties, not having endured transactional relationships.
The competitive pressure on financial institutions of cost advantage is alleged by the
introduction of cryptocurrencies and such advantage is large enough for competing with the
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traditional financial institutions. Many varieties of crypto currencies are created by the open
source nature of Bitcoin. Transactions are facilitated by the closed application network of
block chain technology. In order to respond the competitive pressure of cryptocurrencies,
there is evolvement in the business practices of traditional intermediaries such as banking
institutions. The inter bank transactions are facilitated by using the distributer technology and
such technologies being investigated by central banks (Li and Wang 2017).
The maximum number of Bitcoin is limited to 21 million Bitcoins. There is little for any
possibility for the development of inflation in the future as such, since the order of a
corporation or political factors cannot impact the value of currencies. In addition to this, there
exists an unlimited number of transactions using such currencies systems, as the number of
transactions cannot be controlled. The emergence of crypto currencies has been created in a
demand to allow for cheap and quick transactions and the introduction of such currencies
intends to solve the problems of double spending. Concerning the crypto currencies, there are
substantial differences between such currencies in terms of market capitalization, average
amount of transactions and market price. While carrying out the economic analysis in relation
to the usage of crypto currencies, it have been ascertained that there has been an increase in
the total number of crypto currencies in circulation (Gamble, 2017). With respect to making
payments for international transactions, there is no existence of any restrictions in the
convertibility to other currencies.
The insurance industry has a major bottleneck relation to the process of claim management
because of existing dispute between insurers and reinsurers and insurers and customers. This
can be resolved through the technology of block chain by auditing the documents of
insurance and time stamping. This would also automate the payment by embedding smart
contacts once the events of payment trigger occur. Moreover, services of trade finance are
greatly enhanced by offerings from banks with the leveraging of smart contracts. The
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contingent payments can be automatically be triggered by such contracts that would help in
boosting the efficiency and freeing up the capital in emerging markets amount the small
business (Blankenship, 2017).
In nearer terms, central banks should not be materially impacted by the development of
crypto currencies in terms of the implementation of monetary policies in their fiat currencies.
The influence of central banks on economic activities may diminish, if crypto currencies
become the most popular mechanism of making payments. This would have an adverse
impact on macro stabilisation (McBride 2015). It has been ascertained that the ability of
Reserve Bank of Australia to deliver stable and low inflation is hindered by the crypto
currencies. The reason is attributable to the fact that there is a pre-determined supply path
resulting from schemes of crypto currencies that cannot be altered for matching it to the cycle
of business. For all regulators, several challenges are posed by crypto currencies, there will
not be any involvement of a central authority for regulation in the presence of decentralized
ledger system. The regulation of exchange called by financial action task force has created
interface between fiat and crypto currencies. Service providers of crypto currencies are
regulated by the enforcement network of US Treasury Financial Crimes. There is no
immediate threat to the financial system by the crypto currencies as perceived by the
regulatory authorities and central banks (Burns 2016).
The influence of crypto currencies on the financial market have been made evident by the
number of laboratory experiments and observational studies and the dynamics of crypto
currency markets is being explored by growing body of work studies. In the market of
Bitcoin, there is a presence of specific behaviour. The main concern about the challenges
facing the crypto currencies is related to transparency. There cannot be easy identification of
cash transactions whilst the transactions are completely transparent.
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In using crypto currencies as a means of payment, it is likely that trust will be hampered due
to the high volatility of crypto currencies. It is suggested by reports that in such events, there
can be creation of currencies alternative to crypto currencies. However, creation of such
virtual currencies pose some complications due to the risks associated with it. It can also be
considered that the crypto currencies would have a considerable impact on the stability of the
the financial system. The reason is the that there is no tangible connection of the virtual world
with the real economy. In spite of this, it can be said that the real money can be driven out of
circulation the economy by crypto currencies under extreme circumstances (Robertshaw et
al. 2016). There may be shrinking balance sheet if non-cash and cash money is replaced by
the crypto currencies and this would have considerable impact on conducting monetary
policy. Moreover, there would also be difficulties in measuring the supply of money. It can
be argued by considering the above factors that development and emergency of the
phenomenon should be treated as the next stage in the money development. It has been found
that the rapid fluctuation in the rate of exchange has been due to the thinness market of crypto
currency (Yao 2018). It is indicated by this fact such form of accumulation of capital cannot
be constituted by money due to high exchange rate of fluctuations relating to uncontrolled
level of risk.
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CHAPTER 3: RESEARCH METHODOLOGY
3.1 INTRODUCTION
This chapter highlights the various tools that the researcher will be using for completing this
research study including- research design, research paradigm, research method and data
collection method. For this research study, the researcher will be conducting secondary data
collection method for analysing the impact of crypto currency in the economic activities.
3.2 RESEARCH DESIGN
The research design method helps the researcher to appraise the variables that will be used in
the research problem. There are three broad categories of research design including-
exploratory, explanatory and descriptive. Exploratory research design helps the researcher to
survey the situation for meeting the main objectives of the research study (Mitchell and
Jolley 2012). It involves various methods involving – interviews, experiments, group design
etc that the researcher adopts for attaining accurate data relating to the research topic.
Explanatory research design indicates the attempt to relate with the thoughts to understand
the cause as well as effect of relations. It also interrelates with those factors that come in
collective manner. Descriptive research design highlights on the behaviour and attitude of the
respondents in proper way. The research also endeavours to analyse the additional data
collected for the particular research topic. In this research study, the research will adopt
descriptive research design in order to explore the impact of crypto currency in the economic
activities across the globe.
3.3 RESEARCH APPROACH
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The research approach helps the researcher to classify the research principle by applying
different aspect of research study. There are four kinds of research approaches involving
positivism, pragmatism, interpretivism and realism. The positivism approach discusses about
collection of data as well as positive facts that has been accredited from empirical facts. It
considers the present theories or concepts to conduct the hypothesis testing while conducting
the study. Realism paradigm assumes the approaches to reality of the development activities.
It is mainly dependent on the independent reality idea of the individuals. Interpretivism
approach refers to the kind of social approach, which relies on the social science. It is
implemented by the researcher by applying qualitative research. However, the researcher
analyses research elements and combines interest of individual in this approach. For this
study, the research will adopt the positivism approach in order to obtain an outcome for this
present research study.
3.4 RESEARCH METHOD
There are two kinds of research methods that involves- inductive and deductive. The
deductive method involves developing as well as testing of the hypothesis of the research
topic. Based on this hypothesis, the researcher adopts the strategy for the study (Flick 2015).
On the other hand, inductive method involves qualitative data and evaluates hypothesis in
order to develop concepts. For this research study, the research will adopt the inductive
method in order to complete the research in less time.
3.5 DATA COLLECTION
Data collection method involves two methods, which are primary and secondary. Secondary
data is collected from newspapers, journals, websites etc. On the contrary, primary data is
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collected from first-hand interviews, surveys etc. In this study, the research will use
secondary data as it consumes less time and is readily available (Palinkas et al. 2012).
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CHAPTER 4: DATA ANALYSIS AND
INTERPRETATION
4.1 INTRODUCTION
The present section presents analysis of data to acquire usable and at the same time effective
information. The evaluation intends to describe and present the data in a succinct manner,
recognise associations between variables, compare different variables, recognise the
variances between different variables and predict the outcomes. Essentially, qualitative data
analysis is carried out for understanding recurrent patterns or else themes that are emergent
from the prior body of literature. In addition, this section also presents analysis of various
pertinent and prior business cases for analysing the subject matter under consideration.
4.2 QUALITATIVE ANALYSIS OF THE ACQUIRED DATA
POSITIVE EFFECTS OF CRYPTO CURRENCY
As rightly indicated by Adams et al. (2014), there are open codes for crypto currency. The
only variance of internet banking is the disclosure of specific information regarding users,
however, there is no data regarding the recipient or else the sender of virtual currencies.
There is no inflation that is to say the total number of coins is firmly limited and there exists
neither political forces nor corporations to alter this specific system. In essence, there exists
no prospect for development of inflation in this specific system that can positively affect the
economic operations. As recommended by Böhme et al. (2015), there are unlimited
probabilities of transaction and each one of the holders of wallet can make payments to
anyone, anywhere and of any amount. In essence, transactions cannot be particularly
controlled or else prevented and can undertake transfers everywhere in the world wherever
another holder of wallet of Bitcoin is located.
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Chuen (2015) suggests that in itself, there exists no boundaries and disbursements, this
specific system cannot be cancelled. Essentially, the virtual coins cannot necessarily be
faked, copied or otherwise spent twice. These capabilities and potential of the crypto
currency help in assuring overall integrity of the whole system. Every month the total number
of online shops, corporations as well as resources accepting these coins are increasing. As
suggested by Dwyer (2015), there is a lower cost of operations of crypto currency. Crypto
currency operates as physical cash combining purposes of e-commerce. There is no
requirement to disburse commission as well as fees to different banks as well as other
business concerns. As such, the most important part of this specific procedure is mathematics
that necessarily does not require money. In itself, the commission fee used in this specific
system is comparatively lower in comparison to others. It can be observed that it amounts to
around 0.1% of the overall amount of transaction. Gandal and Halaburda (2016) suggest that
there exists no central authority that can regulate the entire network. Essentially, the network
is distributed to different participants. This implies that the central authority possesses no
authority or power to present rules to owners of the virtual currency. This suggests that even
if certain areas of this network go offline, then the system can continue operate in a stable
manner.
As suggested by Gans and Halaburda (2015), the virtual currencies are easy to use and
considering overall process of opening a specific account. The wallet of crypto currency gets
started within 5 minutes and immediately begins to utilize the same without posing any
further questions or else payment of commission. Therefore, the account can be effortlessly
handled without any kind of hassle that in turn makes the entire system extremely
uncomplicated. Also, the transactions are also carried out speedily and this has the capability
to transfer money anywhere in this world within a few minutes after completion of the
process of disbursement.
23

As rightly put forward by Hoy (2017), complete anonymity is maintained in this system of
crypto currency, and complete transparency is also maintained. Thus, it can be hereby
mentioned that any business can generate infinite coins and address without referring to any
name, address or any other information. Also, stores of coins however keep the history of
different transactions that have occurred. This is known as a sequential chain of blocks.
Furthermore, block chain also maintains information regarding the process.
NEGATIVE EFFECTS OF CRYPTO CURRENCY
There exists strong volatility and majority of the ups and downs of value of virtual currency
rely on declared assertions of governments of different nations. Essentially, this is said to
generate problems in the market during the short term period. Also, there exist huge risks of
investing in particular crypto currencies that need to be taken into consideration in the
medium as well as long term.
Hutchings and Holt (2017) is of the view that overall disadvantages as well as limitations of
crypto currency are comparatively much longer and are associated to the threats of money
laundering along with different other illegal action funding, dearth of central issuer that
implies that there exists no legal formal unit that can provide assurance in case of any
bankruptcy. Nevertheless, even though it is very complicated to forecast, several academics
as well as professionals claim that the future of this virtual community of cryptocurrencies is
very bright as it can remove barriers and intermediaries. This can lessen the transaction costs
and thus promote trade as well as overall economy. Nonetheless, there is need to take into
account pessimistic voices even in the academic world, advising that higher volatility risk,
risks of hacking and dearth of institutional backup makes future of crypto currency very
pessimistic.
24

Findings:
Based on the empirical research it can be observed that the overall future of this virtual
community of crypto currency can be very bright provided certain formal as well as
institutional conditions are satisfied. The advantages of using crypto currency are said to
facilitate trade operations in a nation and lessen costs. These are said to be recognized by
majority of academics. Also, it can be hereby mentioned that bitcoin as well as other crypto
currencies have the capacity to replace different traditional along with new mechanisms of
payment. However, in order to the attain the same and to become a dominant power in a
worldwide system of transactions, there is need to deliver distinctive incremental value for
the purpose of addressing and at the same time overcoming diverse critical challenges,
namely formal regulatory concerns. However, that is unlikely to happen in the near future.
But banking as well as the finance industry needs to take a closer look at the specific
technology that underlies these crypto currencies as way to transfer ownership of value in the
long term.
IMPACTS OF IDENTIFIED FACTORS OF CRYPTO
CURRENCY
1) Regulations of the Government
In spite of the footing that virtual currency has gained over last decade, the path of crypto
currency can be considered to be turbulent. There are many who disagree that presentation of
chaotic and lawless crypto currency has been overriding and uncontrollable as compared to
publicity it stimulated at the time when the same appeared during 2009 (Kristoufek 2015).
The following factors help in understanding the effect the crypto currency industry and
influence of the same on development as well as assimilation into broader pecuniary scheme.
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Whilst the expanding market of crypto currency has the prospective to transform the manner
of exchanging funds, its establishment into international sites is loaded with threats along
with probable downsides (El Bahrawy et al. 2017). As virtual currencies (that is crypto
currencies) are not recognized across the world as certified mode of payment for goods or
services, formulating consistent mechanisms for its utilization is important. As suggested by
Pilkington (2016), for the virtual currencies to be sustainable, there needs to be establishment
of their legal status.
It can be hereby observed that systems of regulatory mechanisms are growing, with
innumerable tactics being adopted by varied governing bodies. Present authoritarian
dimensions are in formative years and persist to advance with the speedily intensifysing
section (Dyhrberg 2016). In essence, regulations and directives can present enhanced
authenticity to a legal tender that is thriving to attain approval of the masses. Tavares et al.
(2016) asserts that they shall standardise components of the market and reduce volatility.
Whilst governments are examining a blend of regulatory stages, their end goal remains the
same, that is to restrict fraudulent acts, guard consumers, revere economic approvals, and
establish viable taxation systems. An aspect of present crypto currency strategy in varied
states can deliver clarity and a wide overview of up to date regulation efforts (van Hardeveld
et al. 2016). Owing to the infancy stage of virtual currency, existing data is essentially in low
in stability and is exposed to continuous alteration.
STUDY OF DIFFERENT CASES ON GOVERNMENT
REGULATION
United States:
The United States of America has adopted a permissive, somewhat neutral standpoint on
cryptocurrencies. Essentially, the present threat encountered by controllers is intensifying
26

subsisting directives to permit for exclusive facets and threats of electronic currency
community. However, for the current requirement of taxation, electronic currencies are
referred to as “property” and not as notes or legal tender, and dealings are subject to the
identical taxation rules as other kinds of property are the national level, the “Financial Crimes
Enforcement Network” has implemented regulatory mechanisms (Vovchenko et al. 2017).
The early attempts of the Enforcement Network to make clear the place of crypto currencies’
in the financial market can be traced back to the year 2013 with assertion that whilst usage at
individual level of electronic currencies cannot be regarded as money service business,
transactions in addition to switch of electronic currencies certainly come under money service
business. For itself, transmitters of virtual currency have the need to follow requirements of
the government that are already in place for money service business, counting reporting
systems, documenting and sticking to the “Bank Secrecy Act of the year 1970” (Wenker
2014). In itself, this can be considered to be noteworthy that it stresses on a great extent on
liability from transmitters of electronic currency and act as a security against scam.
Australia:
In Australia, where citizens represents for approximately 7% of users of Bitcoin, has not
officially adopted rules for electronic currency (Adams et al. 2014). However, the nation has
instituted a taxation system for the coinage. Particularly, trading carried out in the shape of
crypto currency is put through pre-existing rules of tax of the nation associated to both goods
as well as services. The government of the nation has clarified that Bitcoin is not a lawfully
accepted general means of transaction as well as form of paying as per the regulations of
Australia or else laws of other nation (Adams et al. 2014). However, it has offered space for
electronic currency to exist.
27

Canada:
Canada possibly has the for the most part unified as well as developed a system of regulation
and is considered to be the first ever nation in the world to set up taxation on electronic
currencies. This arrangement of taxation has cut overall risks at a regular basis linked to
cryptocurrencies that includes reduction of money-laundering and terrorist-financing. Chuen
(2015) has asserted that “The Bank of Canada” has a keenness to recognize the emergent
market of electronic currency, but at present identifies and considers electronic currencies as
Investments Avenue rather than a currency for transaction.
China:
There is disbelief regarding “money surrogates” and the nation China too has this disbelief
and has carried out steps to limit utilisation of virtual money. During December of the year
2013, the Central Bank of China barred financial institutions from managing transactions of
Bitcoin, restricting legal trade of electronic coins to individuals as well as private parties
(Dwyer 2015). Also, citizens are also inspired to consider bitcoins as well as other
cryptocurrencies as a good and not a workable currency.
Emerging Markets:
Empirical evidences show that significant devaluation of particularly national currency can
also take benefit of efficiencies that are offered by the electronic currency in respect of
money moving in as well as out of the nation (Hutchings and Holt 2017). Let us consider the
example of Kenya. In this nation, more than half of the GDP of the nation is influenced by
the digital currency. A study conducted by PricewaterhouseCoopers (PWC) shows that the
influence of uptake of emerging market can be considered to be more pertinent (Gandal and
28

Halaburda 2016). This reflects that more than 14 million coins are in circulation that has the
highest adoption along with lowest volatility.
Financial Markets:
Prior scholars indicate that financial institutions have expressed a willingness towards
experimenting with specific block chain technologies for the purpose of driving level of
operational efficiencies and to access previously untapped markets. However, there is
disinclination by large financial institutions to accept particular currencies as enterprises are
looking forward towards validating transaction procedures that is something that is seen to
get challenged by adoption of block chain technology (Kristoufek 2015).
FinTech Uptake:
The applications of blockchain for FinTech can be considered to be more desirable for the
platform of Ethereum since it is a supple platform for institutions to execute their operations.
As such, the benefit that is attained is a secure way of transaction along with a single ledger
that lessens the requirement to bring together independent ledger of each and every party
involved (Pilkington 2016). There are benefits of individual currencies in case the FinTech
corporations would intend to enhance liquidity in comparatively less liquidity markets,
although this is a moderately small break.
E-Commerce Uptake:
A study carried out by Tavares et al. (2016) shows that current systems of payment by e-
commerce companies are established such that there remains several touch points that again
shows the way to pricey transactions (that is almost equal to 10%) and longer times of
processing. In this case, the cryptocurrencies can eradicate the necessity for long procedures
of verification and considerably lessen the time required for transaction. Therefore, it can be
hereby observed that Bitcoin seems particularly effective towards minimising these identified
29

costs, even as there remains higher propensity for hacks and breaches of security as a
consequence of intricacy for Ethereum, the probability and degree of impact might perhaps
be less for versatile network of Ethereum (Vovchenko et al. 2017).
Effect Of Compromise Of Different Network:
As suggested by Wenker (2014), in a particular ecosystem that sponsors exceedingly
complex as well as anonymous data exchanges, the likelihood for compromises of major
network (that is to say, ‘hacks’) appears to be high. The instance of Decentralised
Autonomous Organization (DAO) attack leading to 3.6 million units of Ether to be drained
off into a DAO refers to the likelihood and probable rigorousness of this kind of hacks
(Cocco et al. 2017). Whilst there is a 51% chance of an attack, where a greater part of
stakeholder can considerably influence overall value of electronic currency, the probability of
a key hack is improbable due to the rigid structure of virtual currency and comparative dearth
of extensive utility, the only notable exception being Bitcoin Exchange failures as in the case
of the Mt. Gox meltdown. Conversely, Ether has already experienced a significant hack,
leading to the fork between Ethereum and Ethereum Classic (Liu et al. 2016).
30

31

CHAPTER 5: EFFECTS OF CRYPTO CURRENCY ON
ACCOUNTING
Crypto currency is currently the most used type of digital asset for securing the medium
exchange of financial transactions, transferring of assets and verifying the assets as well as
controlling extra assets ones they are created. However, the technology has various effects on
the accounting industry. It has impacted the accounting industry both negatively and
positively.
5.1 POSITIVE EFFECTS OF CRYPTO CURRENCY ON
ACCOUNTING
Crypto currency has made it easy for international traders to carry out transactions easily,
since there is no restriction of using the currency in terms of exchange rates, the currency can
be used anywhere in world without being converted to the country’s currency form (Vitt
2013). Accounting industries find it easy to use the currency when dealing with international
clients, since it saves time in performing the transaction. Due to the technology the currency
is based on, which is known as block chain, it has fastened most of accounting industry
operations. First, it has fastened the settlement of any industry fees since and reduces delays
experienced when making payments. Paying other people involved in the company activities
by use of crypto currency has also been made easy for accountants, since no third party is
involved that always make the transaction procedure longer
Secondly, crypto currency involves use of block chain which is an accountancy based
technology; it has resulted in efficient and effective ways of storing and sharing data in a
digital form. This has enabled easy validation and consolidation of the data by accountants.
The technology is also considered the best in tracking assets ownership and the assets
purchase value as well as the value at which they are sold in accounting industry, real estates
32

and automotive industry Schneider (2017).The block chain technology has also presented a
great potential in accounting industry, in that, it provides a framework that is transparent and
long lasting for the industry to measure its assets and track them also. This in the long run has
made it easier for most accounting industries to identify the assets that are available currently
or in real time. It has also enable the industry to easily identify the value of assets in real time
and their likelihood to affect the future cash flow Pickering (2010)
Thirdly, most accounting industries that have adopted the use of crypto currency have been
kept on top of their industry’s records. This is because, the accountancy based technology
used, ensures all records in store are transparent and any default present on the records can be
easily detected Iwamura, Kitamura and Matsumoto ( 2014). This has therefore help most
accounting industries to ensure their records are clean with no default or errors and they are
up to date. Access to stored data by the accounting industry have also been made very easy,
this has enabled auditors to easily walk in anytime and access the data with ease. The auditors
are also able to put everything in order within a short time because most of the data they will
be accessing is already in order, this makes it easy to keep everything in order for all sectors
in the industry.
Accountants should therefore not be afraid of crypto currency, since it has a great impact to
the accounting industry. It has enabled the industry to keep good records and maintain
transparency of its assets records. Cyber security has also been observed to be well controlled
by use of crypto currency. Most data has been well protected from hackers. Auditing
procedures have also been made very efficient and easy in various accounting industries. In
addition, the storage and access of data has also been made easy through adoption of crypto
currency. On the other hand, Hasso and Duncan (2013), interpretation of information has also
been made easy and efficient in the accounting industry. All this is achieved since crypto
currency involves the use an effective accountancy based technology.
33

5.2 NEGATIVE EFFECTS OF CRYPTO CURRENCY ON
ACCOUNTING
Crypto currency is currently identified to expose most accounting industries to be prone to
tax evasion and money laundering. Most transaction that involves use of the crypto currency
coins have recently been identified to be difficult to track the transaction since the coins used
are not regulated by most banks (Chaplin 2016). Individuals with an intention of money
laundering take such opportunities to carry out transaction by use of crypto currency to carry
out their illegal business, since they are aware that they will not be tracked easily. This has
resulted to a great challenge to the accounting industries.
Use of crypto currency is also considered to be largely involved in transaction carried out in
black and underground markets. Most of such transactions are considered to illegal by most
authorities and countries which is why crypto currency is used in the business. Accounting
industries therefore find it difficult to embrace the use of this currency, since they are
considered to be used for illegal transactions, especially by fraudsters (Borri 2018).
Legal concern of most countries all over the world also does not allow the use of crypto
currency. Banking sectors in such countries therefore do not regulate the currency. For the
countries that allow the use of this currency however end up sometimes rejecting them. This
results in a great lose to the accounting industries that might have embraced the use of crypto
currency in the particular countries that burns the use of crypto currency. In addition,
accounting industry that use crypto currency is subjected to incurring loses, that is in case of
a fall in the value of the currency, Andrianto (2017). Prediction of the currency value to rise
or fall is difficult to tell since the banks do not regulate the currency.
34

35

CHAPTER 6: DOES CRYPTO CURRENCY HAVE A
FURTHER DEVELOPMENT AND DOES IT POSE A
THREAT TO FINANCIAL INSTITUTIONS IN THE
FUTURE?
The growing market of digital currency or crypto currencies in the world has remarkably
increased its position at a level where competition does not allow any operation of those
crypto currencies to be hampered. The constant operation of office blockchain technology
which was launched in 2009 has gone through many development stages that clearly has now
enough opportunity to make themselves at a higher position (Hariya et al. 2017). It is at a
position where development through technological advancements gets easier with time. The
acceptability of Bitcoin is the only key for its technological advancement in society. It is
because if there is no acceptability of Bitcoin as a social transaction unit there cannot be or
there will not be any use of technological advancement that the founder of crypto currency or
Bitcoin may research upon.
Considering every opportunity that Bitcoin has been offered from Microsoft, overstock and
Expedia there seems a great valuation for Bitcoin in future keeping in mind the chances of
irregularities in their value due to the demand of people in general society. With all the
concerns taken into mind it can be justified that the requirement of Bitcoin is not quite known
to every section of the people and due to its high price value in terms of US Dollar, the
acceptance of Bitcoin seems at a stagnant position. The volatile nature of Bitcoin is quite
raising alarm for financial institutions (Webster, 2018).
Development of crypto currency is ongoing at its background operation because of the
investors who are investing huge amount in Bitcoin development. The new knowledge
36

regarding the date of last option is quite helpful in terms of overall growth and development
of Bitcoin in the entire system of crypto currency. The flat value of Bitcoin which is rising as
a crypto currency seems to be in its notorious factor. It seems that in the upcoming 20 years
there will be a creation of storage facilities in terms of digital networking and transaction
value. Total advancement of crypto currency or investment in Bitcoin has led to a
development of situations where advancement seem very nominal. The opportunity and data
consideration of Bitcoin and crypto currency has led to situation of technological height
(Lehner et al. 2017). Holding and transactions can be clearly tracked back to its origin or to
its owner. Imposition of development has been identified in Bitcoins and opportunity of
development in crypto currency we notice has huge blank positions. Therefore, each of those
requirements will be fulfilled because; people have been consumed by the importance of its
operation and value. Considering the development that will be installed in crypto currencies
include the opportunity of high scalability. Installation of MuSig in the operation of crypto
currency will lead towards least traffic gap and make transaction easier and faster. It will be
aggregation of digital signature and blockchain will be clearly made visible to every operator
in the world. With the constant rise of technological advancement in the world of crypto
currency it is noticed that the implementation of lightning network will be followed to ensure
reality phase sequence at a more complex level (Hayes, 2017).
From the above context, it can be seen that huge amount of technological advancement are
waiting for crypto currency and Bitcoin related digital currencies in future, making sure there
will be less and less of paper money transactions in the world.
With all the advancement in the technological environment there always remain questions
regarding the reliability of Bitcoin or any other crypto currency in field of financial aspect. It
37

is not new to be seen that people have invested up on crypto currency for returns but have
ended up in losing everything. The facts of negative aspect from the crypto currency to
financial institution clearly raise concern on a daily basis (Scott 2016).
At the beginning of Bitcoin world there was no knowledge about how was being controlled.
The transactions in monetary concept were actually considered and operated through Central
Bank and the government used to look after every operation of it shifting mark from people
to people or institutions to institution. But, nowadays Bitcoin does not have any obligations to
those governing bodies and therefore there has been a revolutionary change in the structure of
economy. Power development and handling concern of Bitcoin is the price concern towards
the financial institutions (De Filippi, 2014).
There has been an increase in the entry of New Market through the help of cryptocurrencies.
Bitcoin and Ethereum are such emergent in society which clearly are independent from any
governing bodies in society. All these emerging concepts of digital transaction values give
rise to managing body from cyberspace and zero transaction cost. Previously Bitcoin or
Ethereum used Crypto network which considered the distortion of original source (Guadamuz
and Marsden 2015). However, such observation has been declined and made transparent to
everyone. Clearly bringing out full transparency in the transaction, holding and investment
value over crypto currency has led to cosmos of challenges raising the concern that are to be
maintained in general by Financial Institutions.
Discussing regarding the negative impact over Financial Institutions or state that is being
posed over financial institution by the development and upcoming rise in cryptocurrencies,
there comes a situation where dark web is to be discussed. In general science aspects which
38

are not to be accessed by General people are given for the amount of Bitcoin transaction or
other crypto currencies. The dark web is a place where weapons, illegal goods and even
assassins can be found posing a threat not only to financial institution but also to ordinally
civillians. On understanding the dark web it can be understood that there is nothing one
cannot do while having access to dark web and crypto currency (Choo, 2015).
Therefore, it clearly evaluate that with every possibility of positive effect from crypto
currencies like Bitcoin there are equal amount of negative impact over society and Financial
Institutions that must be considered before making sure that these cryptocurrencies are in full
fledged operation in society.
39

CHAPTER 7: CONCLUSION AND
RECOMMENDATION
Based on the findings of the research it can be said that overall prospect of this virtual
community of crypto currency can be very bright given certain formal as well as institutional
conditions are fulfilled. Essentially, the advantages of using crypto currency are said to
facilitate trade operations in a nation and lessen cost.
Based on the findings in this regard it can be seen that with in USA dealings are put through
identical taxation rules as other categories of assets. Enforcement Network makes place of
crypto currencies in particularly the financial market and this acts as a guard against financial
scams (Bankston et al. 2017). Thus, it necessarily has enhanced the exchequer of the
government through taxation. In Australia as well, trading carried out in the shape of crypto
currency is put through pre-existing rules of tax of the nation associated to both goods as well
as services, therefore, adding to the government exchequer. Bank of Canada also recognizes
electronic currencies as Investments Avenue rather than a currency for transaction, therefore,
is said to affect the gross domestic product of the nation.
Thus, it can be hereby observed that electronic currency benefited from principally tolerant
regulation in western nations; however, the same has been subject to stricter regulations in
particular Asia. However, it can be said that regulations will present better validity to a legal
tender that is striving to get mass endorsement. This can homogenize components of this
market and the same time lessen volatility (Bankston et al. 2017). Essentially, it can also be
hereby concluded by varied sources that in a bid to attain widespread adoption among
financial institutions, regulation must be in place to ensure safe and secure transactions.
Also, prior studies suggest that there are different factors that affect the global economy both
positively as well as negatively. It can be observed from prior study that compromise of
40

network leads to higher propensity of hacks. Uptake by e-commerce industry reduces
transaction cost and time for transaction and thereby positively affects the sector. Uptake by
fintech enhances liquidity in less liquidity markets and positively affects the sector. Again,
financial markets are also adopting the block chain technologies for the purpose of driving
level of operational efficiencies and access previously untapped markets (Gainsbury and
Blaszczynski 2017). Devaluation of particularly national currency can also acquire benefit of
efficacies that are presented by the virtual currency with regard to money both coming in as
well as out of the emerging markets. Despite all the positive effects of virtual currency on
economy, the risks of hacks and breaches of security seems to be high that in turn exerts
immense negative influence on the economy.
41

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