Digital currency research paper

Unlike dollar bills and coins, cryptocurrencies are not issued or backed by the U. The lack of a physical token to count and hold may confuse some. Rather, Bitcoin and other cryptocurrencies are a form of digital currency used in electronic payment transactions—no coins, paper money or banks are involved; there are zero to minimal transaction fees; transactions are fast and not bound by geography; and, similar to using cash, transactions are anonymous. Digital currencies are stored in digital wallets, which are software or apps installed by users on their computer or mobile device. Each digital wallet contains encrypted information, called public and private keys, that is used to send and receive the digital currency. Miners are awarded digital currency, like Bitcoin, Ripple, Dogecoin, and Litecoin, in exchange for verifying each transaction and adding it to the blockchain.

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• Digital Currency
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• Search Results
• Design choices for central bank digital currency: Policy and technical considerations
• Bitcoin and the World of Digital Currencies
• How Will Digital Currencies Change the Financial Sector?
• What are the differences between a digital currency and a cryptocurrency?
• A Central Bank Digital Currency for India – Proceeding with Cautious Optimism
• Assessing the Impact of Central Bank Digital Currency on Private Banks
• Explained: The Fed Reserve’s plan for cryptocurrencies, and why it is significant

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Digital Currency

Bitcoin and other prominent cryptocurrencies have gained much attention since the last several years. Globally known as digital coin and virtual currency, this cryptocurrency is gained and traded within the blockchain system. The blockchain technology adopted in using the cryptocurrency has raised the eyebrows within the banking sector, government, stakeholders and individual investors. The rise of the cryptocurrency within this decade since the inception of Bitcoin in has taken the market by storm.

Cryptocurrency is anticipated as the future currency that might replace the current paper currency worldwide. Even though the interest has caught the attention of users, many are not aware of its opportunities, drawbacks and challenges for the future.

Researches on cryptocurrencies are still lacking and still at its infancy stage. In providing substantial guide and view to the academic field and users, this paper will discuss the opportunities in the cryptocurrency such as the security of its technology, low transaction cost and high investment return.

The originality of this paper is on the discussion within law and regulation, high energy consumption, possibility of crash and bubble, and attacks on network. The future undertakings of cryptocurrency and its application will be systematically reviewed in this paper.

Cryptocurrency ; Blockchain ; Mining ; Investment. Since the inception of the fiat money, people have been using it for everyday transaction. Trading and transaction has been much easier.

In the year , after the global crash of , the first form of cryptocurrency has emerged in the form of Bitcoin. It was first introduced by Nakamoto , an anonymous group or individual that has introduced Bitcoin as the first digital currency for easier day-to-day transaction from individual to individual. Bitcoin is operated without the middle man such as banks and monetary institutions. Unlike the current practice, the bank functions as the middleman or the go-between, knows the identity of buyer and seller, thus engendering the issues of personal data protection.

Bitcoin platform has made the trading and transaction of cryptocurrency much easier and more independent, without compromising personal information and details. To some, opting for this method of transaction has entitled them to transact freely and anonymously.

Bitcoin is the first digital coin in the world to have used the blockchain platform. It is created within a transaction log with computers participated across a network Bohme et al. This blockchain has one of the highest security systems by not allowing fraudsters to use the currency more than once. The blockchain protocol rely on proof of work where it ensures miners converge to this structure.

There have been many researchers revealing the benefits of Bitcoin such as security Bariviera et al. Despite that, there are also researchers pointing on the risk and drawbacks of using this digital coin, in term of lack of regulation Cheung et al. Nakamoto introduced Bitcoin in and had initially brought up 50 Bitcoin in circulation. In this early phase, the hype was taken lightly only from the computer enthusiasts around the world Wallace, In , Mt Gox, a Japanese company had created a platform in using Bitcoin as trading mechanism with 20 coins changing hand at 4.

The total volume was approximately one U. S dollar. As the use of Bitcoin had increased, the price had escalated tremendously, and at the time this paper was written, the price had surged drastically to U. S dollar of 6, Bitcoin Chart, According to Bohme et al , the basis of the bitcoin value is based on scarcity. It serves as the foundation to put a value to any form of money. In the current practice of using the fiat currency, the monetary authority or the central bank hold and reserve the money.

Central bank of a country has the power in adjusting the circulation of money and its absolute quantity. The bank is able to produce only limited amount of these paper money for regulating fiscal economic of a country, therefore creating scarcity. This scarcity will be recorded in the bank bookkeeping and will be preserved by the legal rules. The big question that arise as Bitcoin was introduced, are these cryptocurrencies considered as real money?

According to Ali et al. It is a purchasing power that users can manipulate to buy goods in the current time to the future. The ability to make payments and 3 A unit of account. The value that can be measured of any goods for sale. Money theoretically must meet all these criteria but it is not always the case. Analyzing Bitcoin and other cryptocurrency in their current form, all the three criteria are debatable.

One can postulate that it does have a store value due to the ability for purchasing power, but due to uncertainty, one cannot estimate whether Bitcoin can be used in the future as it is being used now. For medium of exchange, some can justify that cryptocurrency can be used for a medium of exchange, but to others the goods that can be exchanged are limited. If all these three criteria are set to be the pre-requirement for any commodity to be given the stature of money, therefore it should be accepted within the context of its use and application.

Radford reported that cigarettes met all these criteria during the hard time of World War 2 where prisoners in war camps used it for transaction. Further back in time, cooking salt can be regarded as having value in the time of Roman empire where the troops wages were paid in salt. As for cryptocurrency, it can be regarded as money to people who are computer and internet enabled. The problem lies on the fact that only a small fraction of the people worldwide has the access to internet devices.

Therefore, within this context, similar to the prisoner in the war camp and the Roman troops, cryptocurrency only is limited to those having access to the internet. Ali et al. This number would be even smaller in emerging and developing countries due to the lack of internet access.

Bohme et al. This cryptocurrency is different from other assets in term of its portfolio analysis, risk management and sentiment analysis Dyhrberg, Compared to other assets such as gold, property, stocks and equity, cryptocurrency does possess similar portfolio in term of having certain value.

These differences create various opportunities to the market where investors and stakeholders alike can benefit from it. How was cryptocurrency initially gained or received? As to fiat money, it is issued by the central bank, while cryptocurrency is created by mining via the blockchain using cryptography technology. This is the method of issuing new cryptocurrency. The blockchain system consisting of users, developers, miners, node maintainers and the interactions that ensure the functionality of the distributed ledgers Dos Santos, Such mining process requires miners to have capital expenses in purchasing the software and hardware.

Mining of other currencies that uses many different algorithm requires the use of high-end and high-speed graphic cards.

For a new miner, one needs to register a wallet and an encrypted banking online that can store and accept the cryptocurrency Kethineni et al. When a miner is able to solve the puzzle in the blockchain system, the digital coins will be rewarded and transferred to the wallet that has been predetermined earlier. A unique ID is assigned on each block and the block preceding it. This is called the proof of work protocol. Proof of work is a protocol of verifying a transaction and informing others about it.

Users or miners have to do work in validating or proofing that they are the real identities. Proof of work adapted in cryptocurrency working principle is to replace the centralized payment system imposed by the banking system.

The main basis of this system is to charge the user i. By this, proof of work principle would be able to limit the access to any given service in mining and trading the cryptocurrency. Miners would have to solve the puzzle embedded in the block, which contain the hash of the previous block, the current block transaction hash and address that will be rewarded after the puzzle is solved.

This is the basic of the mining process. This in turn created a block chain, a trace of the transaction that happened. This blockchain technology will prevent any fraudsters to double spend of ryptocurrency by tampering the transactions in the ledger Vranken, There have been considerable critics of cryptocurrency, one of them is whether it is a form of an asset currency. In its current form, having the ability to perform monetary transaction, according to Kim , bitcoin and cryptocurrencies are much closer and meet the definition of currency.

Even though cryptocurrencies do have complete criteria of the three main characteristics of currency which are store value, unit of account and method of transaction, it does have majority of the elements. Being a relatively new commodity, the opportunities of cryptocurrency looks promising. Despite having escalated in term of its price and value, the fruits and the future opportunities are still being sought after. The following discusses on the realistic opportunities of cryptocurrency for the users, investors and including the government.

The blockchain is deemed to be one of the best platforms and most sophisticated technology since the discovery of the internet. It provides efficiency for online transaction, in term of its security and confidentiality. Ying et al. This report was claimed after the users had followed the recommendation set by Bitcoin. Two flaws in this study is that it does not use actual blockchain system but simulation, and the simulation was only done in one faculty only consisting of students.

In the case of centralized and online transaction, the bank operational system is able to detect such suspicious activity. The blockchain technology is very secured. Fraudsters will not be able to commit such crime because one cannot change nor validate several ledgers at the same time Bariviera et al.

According to a claim by Bentov et al. Hash power is the computing power controlling capability. Khatwani stated that hash power is the power needed by the cryptocurrency network to be function continuously. The hash power is counted in an average of 10 minutes that power is consumed.

By controlling majority of the stake in the proof of work, fraudsters can double-spend on the same block by secretly preparing the blockchain branch beforehand prior broadcasting it to the chain network. Theoretically, fraud can be done in a large scale provided that fraudsters are able to control at certain percentage of the hash power.

This has ensured that the issue of fraudsters being able to control majority of the hash power is undermining by the verification of other method rather than relying solely on the hash power.

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Home » Topics » Cryptocurrencies. The digital currencies story is a continuation of the long-running saga of economics, markets, and commodity exchange in human society. With the constant rise of the global network, we have witnessed many global services becoming widely accepted and in a way changing by adding to our experience of mutual interaction. Looking back in history of the Internet we can conclude that public-key cryptography and digital signatures make e-money possible.

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You might be using an unsupported or outdated browser. To get the best possible experience please use the latest version of Chrome, Firefox, Safari, or Microsoft Edge to view this website. Digital currency has the potential to completely change how society thinks about money. The rise of Bitcoin, Ethereum and thousands of other cryptocurrencies that exist only in electronic form has led global central banks to research how national digital currencies might work. In the U. Right now, you could go to an ATM and turn an electronic record of your currency holdings into physical dollars. Digital currency, however, never takes physical form. It always remains on a computer network and is exchanged via digital means. Functionally, this may be no different than how you currently treat your money using payment apps like Venmo, Paypal or Apple Pay. Following the successful launch of decentralized cryptocurrencies like Bitcoin and Ethereum , which store value but are not managed by any central authorities, governments and central banks around the world are researching the possibility of creating their own digital currencies, commonly known as central bank digital currencies.

Design choices for central bank digital currency: Policy and technical considerations

The purpose of this paper is to gain some insight into central bank digital currency research by reviewing the recent advances in central bank digital currency CBDC research in a way that would help researchers, policy makers and practitioners to take a closer look at CBDC. The review shows a general consensus that a CBDC is a liability of the central bank and it has cash-like attributes. The review also presents the motivation and benefits of issuing a CBDC such as the need to increase financial inclusion, the need to improve the conduct of monetary policy and to foster efficient digital payments. The review also shows that many central banks are researching the potential to issue CBDCs due to its many benefits. However, a number of studies have called for caution against over-optimism about the potential benefits of CBDC due to the limiting nature of CBDC design and its inability to meet multiple competing goals.

Bitcoin and the World of Digital Currencies

A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. Cryptocurrencies are digital or virtual currencies underpinned by cryptographic systems. They enable secure online payments without the use of third-party intermediaries.

How Will Digital Currencies Change the Financial Sector?

A central bank digital currency would differ in some key ways from the online and digital payments that millions of Americans already conduct. An alternative system would be for the Fed to issue digital dollars directly to consumers. In issuing its study, the Fed characterized its likely introduction of a digital currency as a far-reaching step that would require broad acceptance in the financial world. Millions of people own cryptocurrencies, though they are often used more as investments than as forms of payment. But so-called stablecoins, which are often pegged to the dollar, have also soared in use in the past year, mostly for cryptocurrency transactions. And most central banks around the world are studying government-backed digital currencies.

What are the differences between a digital currency and a cryptocurrency?

The first commercial transaction with the first cryptocurrency in marked the start of a revolution in transactions. Blockchain and cryptocurrencies will dramatically transform how we do transactions, just as the Internet revolutionized how we communicate. Currently, more than 2, cryptocurrencies are quoted on the market, and many more are being launched in initial coin offerings for use as an exchange method in a specific business ecosystem or as rights to assets or liabilities.

A Central Bank Digital Currency for India – Proceeding with Cautious Optimism

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Assessing the Impact of Central Bank Digital Currency on Private Banks

A peer-to-peer system of blockchain, originally started for a cryptocurrency Bitcoin, has caused major disruptions in the stock market. It has affected many businesses if not all, but its significance in the financial world is magnanimous. Historical data daily rates for the past 23 months are analyzed to understand the market size, market capitalization and price volatility for Bitcoin. Time series data and financial model are applied to realize the shocks. Monte Carlo simulation is applied to assess the dynamic structure of Bitcoin.

Explained: The Fed Reserve’s plan for cryptocurrencies, and why it is significant

Conversations around CBDC is not new. However, recent developments, particularly, the rise of privately issued cryptocurrencies and stablecoins and the desire to play a leading role in the global discourse on CBDC has accelerated the CBDC research in many countries. The novelty and complexity associated with CBDC issuance involves important questions especially its possible impact on the financial system and its stability.