SECTION 3: FINDINGS
3.1 Data analysis for objective one
In this section, the findings and analysis will be determined particularly for objective one. To get the result for this research. The analysis has used to identify whether cryptocurrencies in the country is safe and trustworthy by people to invest in order not to face losses in the future.
? Government Regulations
While the expanding cryptocurrency market has the potential to revolutionize the way money is exchanged, its introduction into global venues is fraught with challenges and potential pitfalls. Because virtual currencies are not universally recognized as official means of paying for goods and services, developing standardized systems for their use is critical. For the currencies to be sustainable, their legal status must be established.
The United States takes a permissive, slightly neutral stance on cryptocurrencies. The current challenge faced by regulators is expanding existing laws to allow for the unique aspects and challenges of the virtual currency world.
The FINCEN’s early attempts to clarify cryptocurrencies’ place in the financial market came in 2013 with its announcement that while individual use of virtual currencies is not to be considered a money service business (MSB), exchanges and conversion of virtual currencies do fall under the definition of a money service business. This is significant in that it demands a degree of accountability from virtual currency transmitters, as well as one more layer of security against fraud.
Australia, whose citizens account for roughly 7% of Bitcoin users, has not formally adopted regulations for virtual currency, but has established a system of taxation for the coinage. Trading done in the form of cryptocurrency is subject to the country’s preexisting tax rules relating to goods and services.
This skepticism towards “money surrogates” is shared by China, which has also taken steps to restrict the use of virtual coinage. In December of 2013, China’s Central Bank prohibited financial institutions from handling Bitcoin transactions, limiting legal trade of the coin to individuals and private parties. Citizens are being encouraged to treat bitcoins and other cryptocurrencies as a good rather than a viable currency.
The trend towards restriction is mirrored in other countries. Vietnam has firmly cautioned its citizens on the use of cryptocurrencies. While there is no regulation specifically relating to virtual currency usage, the Bank of Vietnam has warned that Vietnam does not consider virtual currency to be a legitimate form of currency. Transactions utilizing forms of cryptocurrency are not covered by legal protections.
Content Country Additional Information
Iceland December 5th, 2013, China’s Central Bank prohibited financial institutions from handling Bitcoin transactions. Individuals and private parties can legally trade Bitcoin.
In February 2015, Russia’s Prosecutor General’s Office Claimed that Bitcoin “cannot be used by individuals or legal entities.” parties can legally trade Bitcoin.
The Icelandic Central Bank said “it is prohibited to engage in foreign exchange trading with the electronic currency bitcoin, according to the Icelandic Foreign Exchange Act”
Prohibition of ATM’s Taiwan Approval for Bitcoin ATMs refused.
Protection from money laundering & illicit activities
Germany Financial intermediaries to verify the identities of their customers and report suspicious transactions.
Bitcoin exchanges and most miners obliged to collect information on potentially suspicious transactions and report these to the federal government.
The sale, exchange or use of Bitcoin for payment in a real-world economy transaction may result in tax liability
The tax will cover gains from trading bitcoins, purchases made with bitcoins and revenues from transactions. Banks and securities firms will be prohibited from Bitcoin trades.
Rules on taxation of capital gains apply when profits are in Bitcoin after it was obtained as payment is also taxable.
Profits from mining or trading subject to capital gains tax unless hoarded for at least one year.
The Bank of Israel, the Capital Market, Insurance and Savings Department, the Israel Tax Authority, the Israel Securities Authority, and the Israel Money Laundering and Terror Financing Prohibition Authority issued a joint statement warning of the risks cryptocurrencies posed to users. However, no regulation has been established.
The Reserve Bank of India’s Secretary General, Ajit Prasad, said “The creation, trading or usage of virtual currencies including bitcoins, as a medium for payment are not authorized by any central bank or monetary authority.” However, cryptocurrencies are currently not regulated.
In their 2013 paper “Bitcoin is Memory,” William J. Luther and Josiah Olson write, “Few retailers accept Bitcoin as a form of payment due to the small user base; and many consumers will not consider using Bitcoin until a significant number of retailers accept Bitcoin payments. Simply put network effects favor the status quo Bitcoin may fail to gain widespread acceptance even if it were superior to existing monies”. Fear has driven many companies, including banks, to thus far reject the embedding of cryptocurrency into their systems. While Bitcoin was founded as an anarchic alternative to the stiff policies and inhibitive regulatory nature of centralized currency schemes, this is ironically one of the main factors causing concern among financiers.
Aswath Damodoran, a finance professor at New York University, writes “While it may conflict with the vision of some Bitcoin revolutionaries, the Bitcoin economy may need a banking system of its own that is regulated and perhaps even insured by a centralized entity”. However, would not only challenge the vision of “some” Bitcoin pioneers, but the grand purpose of Bitcoin to begin with. This would reintroduce the concept of “trust” into the system, which is exactly what Bitcoin’s founders aimed to eliminate by substituting cryptographic proof mechanisms.
Mt. Gox, the highly publicized Mt. Gox theft has likely not furthered public trust in the currency. This breach in security resulted in massive losses for legitimate coin owners, and further paints virtual currency as a volatile and insecure “other” rather than a currency for everyday use.
3.2 Data Analysis for Objective Two
This section will discuss about strengths and threats of crypto currency. The analysis has used to identify the strengths and threats of crypto currency by using website only to get the data. The data researcher collect only used some journal to identify for objective two.
Figure 1: The Best Performing Currency of 2015
Source: Desjardins, J. (2016, January 5)
Bitcoin has strength by design to make it a viable currency that has elevated it in status over the years, more notably the fixed limit of bitcoin that will exist. Bitcoin will be mined with diminishing returns every four years until the maximum number of bitcoins are reached: a total of 21 million (King, 2013). This aspect of Bitcoin is important for its value. Due to the limited amount of bitcoins, it will never become inflated from an overabundance of bitcoins. Also, bitcoin and other cryptocurrencies are generally regarded as being protected from inflation originating from national government changes or restrictions (Magro, 2016). This creates a “safe haven” for investors to put their wealth into, as it generally does not lose value based on inflation. Bitcoin is quickly showing its strength as a refuge against inflating national currencies. However, as is the case with most commodities, the price can fluctuate wildly based on many other external factors. The combination of demand for a safe haven option and its price volatility helped Bitcoin to become the best performing currency of 2015 using the US Dollar Index (Desjardins, 2016). This means that Bitcoin was the highest valued currency in the entire world at the end of last year. This is no small feat in a global economy with powerhouses like China and the United States running the landscape. To purchase bitcoin, one only needs to set up an online account with an online exchange, make their request, and the transaction is usually completed in minutes. Once the bitcoin is in their digital wallet, they would be able to make purchases from thousands of vendors worldwide. In this example, Bitcoin is the more viable solution as quick entry and exit for a currency that can quickly gain value. Other fiat currencies may become stronger and be more desired, but they cannot compete with cryptocurrencies? agility. Cryptocurrency is the disruptive technology that could be pushed into acceptance by investors who simply want a refuge from sinking global markets. An increase in Bitcoin flow will motivate vendor acceptance to accommodate customer needs. Theoretically, this would be a cyclical effect. As more vendors adopt cryptocurrency technology, more users will use it to capitalize on its benefits.
Bitcoin has quite a few hurdles to clear for user acceptance to become widespread. The lack of central ownership of cryptocurrencies means that any attempt to remediate this marketing problem using advertisements could theoretically help the investing company?s competition. This is not an ideal situation for a marketing plan. Cryptocurrencies have also seen fraud and theft, generally due to faulty system setups by exchange companies. These hacks generally make the news, and can easily convince the layman that they are unsafe locations to put their money. As long as cryptocurrencies remain in an area not generally covered by law, user acceptance will be limited. User?s need to trust that any transactions using cryptocurrencies are legal and binding. Markets and governments are slow to react to the new technology. Ultimately, all of these factors limit consumer?s trust in bitcoin and cryptocurrency. This lack of trust leads to issues with investors as well. The dead pool of failed startups has increased to 24, mostly citing security as the main reason for closure (Hileman, 2016). This metric could be considered a watermark for future investors to consider before investing in bitcoin. The Mt Gox and DAO hack shows how inattentive organization can not only lose millions of dollars? worth of digital currency, but can drop the value significantly.
Figure 2: Bitcoin ‘Deadpool’ Grows to 26 Startups
Source: Hileman, G. (2016)
Companies like Apple, Google, and Amazon have entire marketing budgets with a foothold in the mobile application market, giving them a huge advantage over Bitcoin?s comparatively small time players. Mobile consumers want to be able to buy things with phones directly, and bitcoin would have a hard time rallying together as a community to beat out competitors. Another serious threat to cryptocurrency is the maze of US regulations that would need to be traversed before mainstream user acceptance. The US government has yet to even classify what type of asset bitcoin is, which will prevent most market participants from adopting cryptocurrency based on business models (PwC, 2015). Cryptocurrency could be labeled as either a security, capital asset, commodity, or a currency, and each would have a different effect on how bitcoin is adopted. International views of bitcoin vary by country, but seems to be viewed positively based on Bitpay assessment of transactions. In Europe, transactions have reached an all-time high at 102,221 per quarter (Patterson, 2015), which may be the cause regulations being passed regarding bitcoin and cryptocurrency. Bitcoin transaction have become exempt from value added tax by the European Court of Justice, effectively recognizing it as a legitimate means of payment in Europe (Perez, 2015). This simply means that bitcoin transaction will not be taxed in Europe. While great news for European bitcoin users, other major markets are still missing crucial legislation regarding bitcoin taxation. Legislation in the United States could negatively affect how bitcoin transactions are processed, delivering a severe blow to legitimacy as a currency.