Cryptocurrency As An Economic And Legal Category
By IMBA-Exchange on The Capital
In fact, cryptocurrency was predicted a long time ago. So, the authors say that the first book about Bitcoin was written 12 years before its appearance. Back in 1997, two researchers, an American and an Englishman, published a book called “The Sovereign Individual: Mastering the Transition to the Information Age”. The authors of the book convinced readers that great changes await humanity. In bold and strange descriptions, they, in fact, managed to predict the idea of cryptocurrency, which was embodied in frightening accuracy in bitcoin.
Cryptocurrencies had predecessors, which is not surprising, but the most interesting thing is that cryptocurrencies also have contemporaries who have the same or almost the same qualities and who are also “fighting” for recognition by the authorities.
So, today the Japan State Financial Services Agency is discussing the possibility of regulating operations in the PokeCoins currency used in the Pokemon GO game. If the decision to impose restrictions in this area is made, it can extend to other mobile games, and in the future — to video games in general. Thus, the Japanese plan to fight fraud and money laundering, which in recent years has become a real scourge of the computer entertainment industry.
However, we turn to understand the essence and imminent signs of cryptocurrencies.
Unfortunately, today in theory and in practice there are no unified approaches to the definition of cryptocurrency, which complicates not only the legal regulation of cryptocurrency in the world but also a scientific discussion on this topic since the subject of such a discussion is not directly established and is rather “dark”.
Generally speaking, from the perspective of information technology, cryptocurrency is digital money, the issuance, and calculation of which is based on encryption.
The issue of bitcoins (a type of cryptocurrency) occurs through mining. Mining — the creation of new bitcoins (another cryptocurrency). The issue of cryptocurrency is decentralized — there is no central bank in the world that single-handedly “printed” bitcoins. Miners are doing this. Using the computing power of their computers, they add new blocks to the network and record transaction data in them. Miners receive bitcoins as a reward for expanding the database. This database is called a blockchain.
There is an approach to cryptocurrency as an irrational product, small investments in which at this stage have a significant impact on the price, therefore it is rather an unstable (speculative) financial asset.
When mining, the blockchain can be public or private. A public blockchain is a blockchain with an unlimited number of participants, each of which can engage in mining. Public blockchains include all existing cryptocurrencies — Bitcoin, Ethereum, etc. A private blockchain will be such that only a limited list of participants has access to transaction processing. It finds application at the level of government organizations, banks, etc. R3 Corda, IBM Fabric, Exonum are examples of platforms for creating private blockchains.
As a matter of fact, cryptocurrencies and tokens are not located in an abstract place on the Internet, but, like any monetary and quasi-monetary assets, are stored in a “wallet”. The wallet here is a client program or web application for storing cryptocurrencies and tokens. Wallets can be “hot” (with constant access to the Internet and the ability to spend cryptocurrency online) and “cold” (without access to the Internet). The wallet is protected by a secret key. Secret key — secret information is known only to the owner of the cryptocurrency wallet that is used to verify the digital signature. In the production of transactions, such a thing as multi-signature is used. This is a security method in which several network participants must sign it to confirm the authenticity of the transaction. No one cancels the digital signature as the basis of transaction security and cryptocurrency storage — a combination of public (it is known to all network participants) and private (it is known only to the transaction creator) cryptographic keys that are used to authenticate transactions and identify the sender.
We believe that cryptocurrency is a type of digital “currency” created on the basis of cryptography and therefore having increased reliability and security, used as a “transparent” means of exchange and accumulation, decentralized, anonymous and virtually uncontrolled by states, different from ordinary money only by its non-recognition (so far) by states.
The above terminology seems difficult not only for the layman but also for professionals in the field of law and economics.
Often the concepts of “cryptocurrency” and “digital currency” are considered synonyms, but this is fundamentally wrong. It is necessary to at least briefly examine how they fundamentally differ and how to combine their advantages with the benefits of the global financial system.
Digital currency is money that is used on the Internet. Digital money exists only in a virtual format, it does not have a physical equivalent in the real world. Nevertheless, they possess all the characteristics of traditional money. Like classic fiat money, it can be received, transferred or exchanged for another currency. They can also pay for goods and services, such as mobile communications, the Internet, bills in online stores, etc. The digital currency has no geographical or political boundaries: money from an electronic wallet can be sent from anywhere and anywhere. In fact, digital accounts and wallets can be regarded as bank deposits.
Cryptocurrency is a type of digital currency. This is an asset that is used as a medium of exchange and is considered reliable because it is based on cryptography. One of the main goals of cryptography is the secure exchange of data. Cryptography creates and analyzes algorithms and protocols so that the transmitted information is not changed or destroyed by third parties. Cryptography combines the principles of various sciences, the main of which is mathematics. It provides the accuracy and reliability of algorithms and protocols. Cryptocurrency uses blockchain and distributed registry technologies. Thanks to this, no regulator can control what is happening on the Web, and this is happening throughout the userspace.
Despite the fact that cryptocurrency is a type of digital currency, fundamental differences can be distinguished between them.
- Firstly, differences in structure. The digital currency is centralized: there is a certain group of people and a network of computers that control network transactions. The cryptocurrency, in turn, is decentralized, and the rules are set by a majority of the crypto community members.
- Secondly, a different approach to the category of anonymity. To use digital currency, user identification is required — the system requires you to upload a photo and certain documents issued by government agencies. For the purchase, investment and any other manipulations with cryptocurrency, none of this is required. However, cryptocurrencies do not provide complete anonymity. Despite the fact that the addresses do not contain any confidential information — names, registration, etc. — each transaction is registered, and senders and recipients are well known. Thus, any transaction can be tracked.
- Third, transparency. Digital currency is opaque. You cannot select a wallet address and see all money transfers, this information is confidential. Cryptocurrency, on the contrary, is transparent — you can see the list of transactions of any user since all revenue streams are placed in a public chain.
- Fourth, transaction management. The digital currency system provides for a central authority that deals with problem-solving. He can cancel or freeze the transaction at the request of the participant or the authorities, as well as on suspicion of fraud or money laundering. Cryptocurrency is regulated by the community. It is highly unlikely that users will approve changes to the blockchain, although rare precedents have occurred — for example, hacking DAO. However, it was a large sum, and the decision was not unanimous.
- Fifth, the ambiguous state legal regulation of these financial assets. Most countries have developed a specific legal framework for digital currencies, such as Directive 2009/110 / EC of the European Parliament or Art. 4A United States Commercial Code. At the moment, this is not the case with cryptocurrency, since in most countries its official status is not defined. However, creating a legal framework is only a matter of time.
In a centralized system, there is a group of people responsible for the state of the entire structure. If an error occurred during the transaction, you can make a request to the company and expect that everything will be fixed. In a decentralized system, this is not possible.
At the same time, centralized networks store a lot of confidential user information. This data may be lost, stolen or transferred to law enforcement authorities at the request of the court. There are no such problems in decentralized networks. The same goes for transaction cancellation. If cancellation is possible in the system, then it is also possible to make changes to the transaction, which is actively used by scammers.
Cryptocurrency and blockchain will allow you to take advantage of all the benefits of the crypto world — transparency, security, and decentralization. Digital money, in turn, will provide the supervisor, digital wallets and a set of rules.
Of course, some “novelty” of cryptocurrencies is embarrassing, however, as A. Einstein said, “a person who has never been mistaken, has never tried anything new.”
The cryptocurrency market is moving forward, and there are already a lot of cryptocurrency exchanges — financial institutions that trade cryptocurrencies, tokens and exchange them for fiat money (dollars, euros, etc.). Among the existing exchanges, the most famous are Bitfinex, Binance, Poloniex, Bittrex, and now the IMBA-Exchange is gaining popularity, etc.
At the same time, there is positive news for amateurs who still want to join the world of cryptocurrency trading.