Introduction Bitcoin or crypto currency is an open source payment system
Bitcoin or crypto currency is an open source payment system, that was invented by Satoshi Nakanota in 2009.It uses the internet for a peer-to-peer exchange of value and is a decentralized system. Also eliminates the opponent of risk from dealings, the simplest way to describe bitcoin or crypto currencies is that it is a form of alphanumeric money that is kept electronically (reference).Bitcoin or crypto currencies are unregulated in most countries but in countries like Japan, China, and Australia they have begun weighting regulations as government is worried about taxation and lack of control over the currency. In South Africa the reserve bank has decided to establish a full-time cryptocurrency task team that monitors blockchain and computer-generated currency activities in the country.(reference)The essay willIn this essay we analyse and discuss if bitcoin or crypto currencies can cause severe unpredictability or collapse an entire economy and whether regulators are sufficiently aware of these risks. The essay will furtherAnd assess the benefits and shortcomings of using bitcoin or crypto currencies.
It is very difficult to count the number of bitcoin or crypto currency users due to its anonymity feature which is a good thing with regards to making transactions to foreign countries as efficiently as possible but on the other hand it makes it relatively easy to commit fraud and theft without being caught by the authorities. Alex Lielacher (year of the article) a researcher, predicted thats the number of bitcoin users worldwide will reach 4.7 million by the end of 2019 marking a significant increase of 1.3 million users in the current year.
With the rapid increase in the number of bitcoin or crypto currency users it puts pressure on central authorities around the world to try and regulate or create a legal framework for this currency. Research also demonstrates that if crypto currencies are managed prematurely it could have adverse consequences, in addition it would impact the growth and innovation of an industry or economy negatively. With this said regulating virtual currencies is not an easy task.
Bridget King a finance and banking practice director at Cliffe Dekker Hofmeyr reported that imposing hard regulations makes it a friendlier location for investment and innovation .And that if there are no regulations implemented, scams and other illegal activities have a high chance of spreading .Which destroys consumers and investors trust in that system as a whole which may cause bank panics for instance which could lead to systemic risk of the economy collapsing.
Creating a legislation that encourages the adoption of cutting-edge financial infrastructure could be a massive boom to economic competitiveness, on the other hand giving to much freedom may risk the integrity of the country’s own paper money so an equilibrium hasn’t been struck just as of now.
Theoretical review What makes bitcoin or crypto currencies functional is the fact that it overcomes two major obstacles facing any digital system by avoiding double spending for example once you transfer money to another user it cannot be reversed or used again and controls creation of money through using bitcoin as an alternative.
Benefits of bitcoin or crypto currencies:
Bitcoin or crypto currencies were designed with freedom in mind, generally freedom from central authorities who control transactions, imposing fees and who manage people’s finances. Bitcoin or crypto currencies are highly portable and gives users the ability to make transactions without being limited.
Problems of bitcoin or crypto currencies:
The legal status of bitcoin varies from country to country, some countries have even banned bitcoin, once you lose your “key” which is an alphanumeric password you cannot access your bitcoin wallet and the price of bitcoins fluctuate intensely which can cause financial harm to investors. HYPERLINK “https://bravenewcoin.com/authors/alex-lielacher/”
Every currency in the world is governed by authority, besides cryptocurrencies. Bitcoin is yet to obtain a legal tender status on most jurisdiction, but some authorities have acknowledged its significance and proposed specific regulations for example in the U.S Internal Revenue Service treats bitcoin and other prominent digital currencies.
The biggest challenge government authorities have faced worldwide is legitimising the environment of bitcoin or crypto currencies because of its volatility and unpredictability, understanding that regulation should not necessarily be prohibition. It’s at the governments best interest to establish the most suitable legislation on bitcoin or crypto currencies to avoid money laundering and tax evasion by bitcoin users.
The downside of the government intervening or regulating bitcoin crypto currencies is that it will be responsible for the difficult situations people put themselves in, and before this “intervention” every person was responsible for themselves.
Empirical ReviewGiven that trading of bitcoin takes place in many currencies, it is possible to use bitcoin to test the theory of purchasing power parity which states that items sold in different countries must be traded for the same price after being adjusted for nominal exchange rates. Here we analyse whether purchasing power parity holds in bitcoin markets for dollars, euros and British pounds which are the most popular currencies by volumes..
Final comments:Great content, however the titles are not fitting to what you are describing. Re title them. It is not forced that you have a theoretical and empirical section, as long as the work flows and you tell a story.Please make sure that you reference your work.Include the risk and regulation in you discussion. Do exactly what you said in your intro.