Posted by Drowning into crypto currency assimilates understanding to seize wider scope that it`s the trendy technology of digital money usage. Cryptography is said to be the hero of its high security, creating one strong reason of avoiding the currency`s fake version. It overall looks definite and full of temptation for investment, but does the guarantee prevail? Who`s the lucky party to be responsible if trading failure occurs or if millions of people undergo huge loss? A question stands still after all.
First-tier Surface to Recognise
A wide-array of 1,500 crypto currency types, including several ones named under crypto currency money, are on availability to work in identical concepts (coinmarketcap.com. 2018). Despite mushrooming options, seems that only big companies like Google Ventures that dares to develop and invest in crypto currency seriously. Excuse of price determination that`s based on market price has made small-scale players stand in less capacity. Reliance to market price also means that its price connects closely with demand and supply of digital currency money; but what`s crucial on the table is how the currency exists with no regulation, leading to no price and security guarantee. Let`s say recognising bitcoin, ripple, stellar and lite-coin as crypto currency that can be managed in simple rule: to buy at the lowest price and to sell at higher price – becomes a non-absurd sense to digest how the prices are often found to be erratic.
The fluctuation is very much profitable to first buyers, especially those purchasing crypto currency money in early stage when fame hadn`t been on stage. Initial buyers` luck to obtain significant profit in cash money, as trading of crypto currency could be dealt with official physical currency. In Indonesia, as real story once told personally by a bitcoin owner; few years back 1 bitcoin cost only IDR 10,000 (US$72 cents) – but until around mid-2017 it surged to between IDR 4,000,000 (US$288) to IDR 7,000,000 (US$504) per 1 bitcoin. 10,000 pieces of bitcoins were his property on innocence; lacking idea of why such price hike could occur – but as he wasn`t serious financial player, his decision to sell all led to tremendous cash received. What a surprise, but basically he was lucky in the right booming time; no wonder that it seemed easy for him to find second buyer.
Behind-the-scene, embrace of crypto currency hides a reason of its fast pace compared to banking procedures. In bitcoin, let`s say, a settlement occurs in seconds if uses zero-confirmation transaction; meaning that sellers would take risk to derive unconfirmed transaction by blocking coater bitcoin or only 10 minutes needed if they aim to use confirmation transaction. Here, using confirmed transaction is apparently faster than getting through process in bank transfer. Additionally, cheap or even no-fee transaction fundamentally becomes excuse to be crypto currency addicts; a clear competition towards bank that charges fees including interest and administration. Crypto currency looks even more attractive as governments can`t get involved inside the movement or monitoring. It`s a decentralised currency that leads people to have the control over it and no government authorities possess command upon it and even central banks can`t take over the money in any forms.
Not only a rival to bank prevalence, crypto currency seems to provide feasible alternatives of transaction. Take a single case, which transaction cost by banks for international transfer is expensive – the charge could be above $12; in bold note that the procedure consumes a few business days to clear, even possible to exceed one week. Meaning that productivity slows down as companies should wait to send products until payment is received; often time, purchases are cancelled due to whole long phase as well as how additional costs are another burden. In such template circumstance, benefits are only for bank side, that`s why the coming of crypto currency seems to change a mindset; global trade has never been easier. Proven by how global foreign exchange market has daily trading volume of over US$50 billion and with above-listed reasons, impacts are plausible in amongst purchasers and business practitioners aiming to trade easily in super speed.
Mining on Crypto Currencies
Albeit digital money addicts could mine their crypto currencies and have an exchange with cash, but mining them is generally undergone by solving complex math problems functioning special server to generate solution and release coins. A rather complicated process whereby they should invest to buy server and pay higher electricity cost as mining sucks up tons of energy supply. It also needs appropriate powerful graphic card as key component for mining (Villas-boas 2018). Nonetheless, it`s a complexity that doesn`t curb the popularity of crypto currency as a platform named Blockchain has given another access to be transaction place of crypto currency.
The first blockchain was initially in practical usage by 2009, and 2014 was a point of its evolvement into Blockchain 2.0. Every block has a relationship using cryptographic that connects each other in creating a network. Blockchain works using two methods: transaction and block – which this transaction is stored together in one block. Uniquely, every block contains Hash Cryptography that forms a network; functioned to derive data from previous block and alter to a compact string. The string allows the system to detect any sabotage quickly and by using this method – no block needs to record the number. The hash enables each block to verify its integrity, whereby each block will record its validity from the previous block. The linkage of bone blocks is one element that keeps the network safe.
The technology works in decentralised format, using any computers that have software used for blockchain installed. No central server holds a transaction; and since every new block has to meet the requirements of the network, nothing can overwrite the previous transaction. Another transaction requirement is only choosing a valid transaction for entry (Dupont 2017, p.637). In clear example, bitcoin comes up with legitimate transactions that must be signed digitally and issue one or more available outputs from the previous transaction – and the amount doesn`t exceed input number.
Fluctuation in Roller-Coaster Nerve
It would then arrive in a point that crypto currency is fresh way to obtain profitable investment, but remembering that price fluctuation benefits the first buyers at most – should be put into account. Second buyers might see high profit obtained by the first ones as a definite pattern, without considering erratic price would lead to potential huge loss. Furthermore, what if the first buyers already understand about such risk and still sell their crypto currencies without intention to get themselves back to the trading. Leaving the newbie crypto-currency freak with uncertainty whether the value would remain, be higher – or even drop abruptly and huge loss is inevitable after all.
Herewith lies a big question of who`s responsible if failure of crypto currency occurs, a reality to concern that crypto currency existence is sensible profitable investment yet contains unknown risk. Perhaps here`s the point where governments ban bitcoin or any types of crypto currency – first primary reason is an aspect of security issues, second is people`s rising trend in using crypto currency for exchange is highly associated with decentralising (Park. 2018). It`s re-emphasised here that crypto currency enables people to trade directly without middleman like bank to be intermediary between people and companies` transactions.
The idea of governments forbid such intangible currency should be a viewpoint of how they attempt to protect the world`s citizens from financial obstacles – which the governments themselves aren`t involved inside. Considering that it`s not about whether crypto currency makes profit in decentralised or centralised way; but it`s logical that governments put significant concern towards who`s going to be responsible, if chaotic clash happens in the whole world owing to huge loss that might appear if crypto currency fails to remain stable and profitable.
A country like South Korea in 2018 raided crypto currency exchange office due to suspicions of tax evasion. The nature of crypto currency is anonymous – meaning that it can be used for illegal transaction; as of buying and selling drugs, guns or weapons. According to central bank authorities, crypto currency can be used for money laundering or terrorism; and it also allows hackers to request a fake payment and stay anonymous. It is clear that the advised usage of Blockchain platform makes transactions to be more immune to be hacked, leaving central bank behind with no ability to trace and banks in general to be unnecessary for transactions support.
As crypto currency is self-governed without control from governments or authorized persons/institutions, it should be logical if motivation to ban crypto currency appears. If monitoring is almost impossible, it then poses a threat to government authorities; even a vast country such as China – that applies very aggressive control of internet – has no power at all to ban this type of virtual currency. To a country such as Indonesia, threats are surely in the country`s face – as if their citizens use crypto currency, impact to stability of their national currency would be negative.
Banning Crypto Currency isn`t Final Battle
For the governments to ban crypto currency wouldn`t finalise the problem instantly, indeed – as black market is uncontrollable. Many love crypto currency, it`s an obvious preferred intangible investment in recent years. Also, nature of virtual currency of being decentralised provides almost nil effect on crypto currency trading although governments try so hard to ban it. To kill it altogether, all governments worldwide should forbid the practice at the same time, it could be said as the only way. Nevertheless, most countries aren`t really clear in making statement about determinations towards crypto currency legality, which many of them stand within wait-and-see method. A few countries have indirectly assented to the legal usage of virtual money by enacting some regulatory oversight. However, this type of currency is never legally acceptable as a substitute for a country`s legal currency (Dean 2018).
Perhaps what has been applied by the United States could be taken as actual motivation to solve handling crypto currency usage; as the country already took action by appointing several agencies to prevent crypto currency usage for illegal transactions. The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued statement which makes virtual currency works not as currency but defined as money services business. Crypto currency is positioned under the Bank Secrecy Act which requires exchanges and payment processors to adhere to specific responsibilities such as reporting, registration, and record keeping. Besides, crypto currency is categorised as property for taxation purposes by the Internal Revenue Service (IRS) (Bajpai 2018).
If all countries could copy what the United States has exemplified, crypto currency illegal usage might potentially be minimised; however, it`s still understood that establishing such identical regulation into practices isn`t that easy considering every country must appear with pretty distinctive cases. Thus, banning crypto currency is still priority to curb future negative potentials; so it`s more of combination between wait-and-see method and conducting deeper research towards what has been undergone by the United States. After solid idea of what kind of regulations to implement upon crypto currency usage is found or determined, then the banning period could be over.
Even so, before any feasible regulations are applied, governments still have proper excuse of banning crypto currency – which is for the sake of people`s protection. Banning it should be the best decision at present, although it`s fully understood that crypto currency is loved as alternative financial solution. Our decade of fluctuated global economic crisis tends to make physical currencies in many countries stumbled in value and how prices have risen significantly; making people got the urgency to find more profitable investment. There, crypto currency steals attention with attractive profit offer, thus it makes sense to witness people` s curiosity that drags them to put money without any risk consideration.
Once stated that although crypto currency has an advanced technology, doesn`t mean that it has no weakness inside (Hern. 2014). Even the biggest market cap for crypto currency like bitcoin can be hacked. In June 2011, Allinvain – a member of the BitcoinTalk forums – became the first person to suffer from a major loss owing to bitcoin hack. 25,000 bitcoins were stolen from the wallet after hackers compromised Windows computer that was used. At that time, the total money that Allinvain lost was equal to more than $500,000, in which today could be at least £10m.
Stance of Deeper Thought
As the governments have so-far no control and access to crypto currency trading process or transaction, It`s been obviously difficult for them to check the validity of one; and again, there are said to be 1,500 types of crypto currencies leading to more and more matters. They`re unable to trace where the money ends and also can`t give sentence to the theft. They can`t control the money, so that in the case of massive loss due to fluctuating crypto currency, who is going to be responsible if a chaotic clash happens in the world as a result of massive loss appears due to its failure to remain stable and profitable. As governments, they`re highly advised to protect their citizens, but at the same time they lose the authority in handling crypto currency as the system runs as decentralised currency.
The idea of investing in crypto currency – which keeps citizens away from governments` eyes and control – looks interesting enough to somehow benefit their better future endeavour. Here, decade of global economic crisis is after all the fundamental reason why people are making their own problem by establishing such non-guaranteed currency; but it`s humane to keep looking for better options. Nevertheless, governments path to ban crypto currency – in the meantime – is the right way to protect people; that simple. It`s also not definite that governments would ban crypto currency forever, it might be the best way to analyse and research at first hands – before releasing to public of its security assurance. In short, it`s not about governments` jealousy towards financial control, but it`s prevention of potential financial chaos.
| Writer & Editor: Anisa Kirana. Jakarta | Research & Co-Writing by Joshua SM. Macquarie University, Sydney | Photo Credit: Renatha Wisaksono. Jakarta | 2018 |
Reference List
| Dupont, Q 2017, ‘Blockchain Identities: Notational Technologies for Control and Management of Abstracted Entities’, wiley, vol 48, no. 5, pp.634-653 |
| Park, M 2018, Why Is Bitcoin Being Banned in Many Countries?, Krown, viewed 1 June 2018, <https://krown.io/1704/why-is-bitcoin-being-banned-in-many-countries> |
| Villas-boas, A 2018, ‘How to make money mining bitcoin and other cryptocurrencies without knowing anything about it’, Business Insider, 12 February, viewed 1 June 2018, <https://www.businessinsider.com.au/how-to-mine-cryptocurrency-make-bitcoin-without-knowing-anything-2018-2?r=US&IR=T> |
| Bajpai, P 2018, ‘Countries Where Bitcoin Is Legal & Illegal’, Investopedia, 11 April, viewed 1 june 2018, https://www.investopedia.com/articles/forex/041515/countries-where-bitcoin-legal-illegal.asp |
| CoinMarketCap 2018, Cryptocurrency, California, viewed 1 june, https://coinmarketcap.com/ |
| Milsom, D <Devin@CryptoInvestorsClub.co.uk> 2017, ‘Why do people love cryptocurrency?’, Online discussion, 3 November, Quora, viewed 2 june 2018, https://www.quora.com/Why-do-people-love-cryptocurrency |
| Dean, M 2018, ‘What Happens If Some Countries Ban Cryptocurrency?’, Medium, 15 January, viewed 3 June 2018, <https://medium.com/@mahyardean/what-happens-if-some-countries-ban-cryptocurrency-756abf7477d4> |
| Parsons, J 2017, ‘Here’s why banks and governments hate the Bitcoin cryptocurrency’, Mirror, 2 November, viewed 3 June 2018, <https://www.mirror.co.uk/tech/why-banks-hate-bitcoin-cryptocurrency-11433562> |
| Hern, A 2014, ‘A history of bitcoin hacks’, The Guardian, 18 March, viewed 3 June 2018, <https://www.theguardian.com/technology/2014/mar/18/history-of-bitcoin-hacks-alternative-currency> |
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