Cryptocurrency as medium of exchange

The variables of the study are trading values, volatility, data security, and marketability. In trading values, the price of bitcoin varies directly to its volatility. If the volatility of the bitcoin increases, the price of bitcoin also increases. Hence, the value of the virtual currency is greatly affected by trading value. Accounting Standards may not be applicable in this situation unless it is considered to be in Hyper Inflationary Economy.

Some countries have issued warnings and amendments while others have expanded their laws regarding virtual currency because one of the crucial features of this is data security. Lastly, in the aspect of marketability, the market capitalization of the virtual currency is growing at an unrealistic rate, to which accounting standards have note identified rules and principles to determine how would this rate are being valued.

The Network Effects of Money The network effects of money are stronger than any other good or network. Unlike social networks, monetary networks are mutually exclusive. While a user can use both Facebook and MySpace, a given amount of value cannot be invested in both Bitcoin and the U. This forces every individual to choose their monetary network and evaluate the opportunity cost of not joining others.

Additionally, the stakes for choosing the correct monetary network are far higher than other networks. If an individual chooses a bad social network, they might be bored, but if they choose a bad money, they will suffer financially. In cases of hyperinflation , when an entire monetary network collapses, this loss can be disastrous.

These factors make incumbent systems resilient to replacement by new competitors, even if they have some superior traits. For a new money to replace an old money, the challenger must be significantly better in order to overcome the network effects of the incumbent. However, when a monetary network fails, it fails suddenly and violently, and the last to leave are most harmed.

In other words, in an economy where two currencies are in use, individuals will spend the money which is constantly devaluing and hold the money that retains its value. Thus, the bad money will dominate in terms of circulation and use in daily transactions, while good money will dominate in terms of savings and long term investment. For example, in the case of Bitcoin, imagine an individual who holds both bitcoin and U.

If they must spend money to buy goods, they should rather spend their dollars as it is constantly being inflated and devalued. Indeed, this phenomenon is readily observable today. So, when will this change? Bitcoin will be used as a medium of exchange only when inferior monies are refused by merchants. Since governments typically make refusing their local currency illegal, this might take a long time, but in the meanwhile, Bitcoin will continue to succeed and gain adoption in other realms.

Medium of Exchange vs. Means of Payment Another feature of money that should be taken into consideration is the difference between a medium of exchange and a means of payment. Money is a medium of exchange as it denominates the rate of exchange between any two goods. A means of payment, however, is simply the method of executing a specific exchange. For example, if you buy a coffee in dollars, you might not pay in physical cash.

Instead, you might use a credit card, an app, a gift card, or even loyalty points. All three of these are means of payment rather than money itself.

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Reyes, Mary Herschelle N. Yumul Abstract The purpose of the study is to determine the effects of using cryptocurrency as a medium of exchange in the Philippines and how the existing Philippine Accounting Standards are being applied in terms of reporting and valuation in Financial Statements. The study used qualitative method research to assess the relationship between using of cryptocurrency as a mode of payment today and the possibility of using cryptocurrency as a medium of exchange.

The variables of the study are trading values, volatility, data security, and marketability. In trading values, the price of bitcoin varies directly to its volatility. If the volatility of the bitcoin increases, the price of bitcoin also increases. Hence, the value of the virtual currency is greatly affected by trading value.

The most widely used proof-of-work schemes are based on SHA and scrypt. Another method is called the proof-of-stake scheme. Proof-of-stake is a method of securing a cryptocurrency network and achieving distributed consensus through requesting users to show ownership of a certain amount of currency.

It is different from proof-of-work systems that run difficult hashing algorithms to validate electronic transactions. The scheme is largely dependent on the coin, and there's currently no standard form of it. Some cryptocurrencies use a combined proof-of-work and proof-of-stake scheme. For this effort, successful miners obtain new cryptocurrency as a reward. The reward decreases transaction fees by creating a complementary incentive to contribute to the processing power of the network.

Consequently, the reward for finding a hash has diminished and often does not justify the investment in equipment and cooling facilities to mitigate the heat the equipment produces , and the electricity required to run them. By July , Bitcoin's electricity consumption was estimated to be approximately 7 gigawatts, around 0. A "share" is awarded to members of the mining pool who present a valid partial proof-of-work. As of February [update] , the Chinese Government has halted trading of virtual currency, banned initial coin offerings and shut down mining.

Many Chinese miners have since relocated to Canada [63] and Texas. The country built a compound containing 50, computers near Ekibastuz. Miners regularly buy up the entire stock of new GPU's as soon as they are available. With the public key, it is possible for others to send currency to the wallet. There exist multiple methods of storing keys or seed in a wallet. These methods range from using paper wallets which are public, private or seed keys written on paper , to using hardware wallets which are hardware to store your wallet information , to a digital wallet which is a computer with a software hosting your wallet information , to hosting your wallet using an exchange where cryptocurrency is traded, or by storing your wallet information on a digital medium such as plaintext.

Block rewards Proof-of-work cryptocurrencies, such as Bitcoin, offer block rewards incentives for miners. There has been an implicit belief that whether miners are paid by block rewards or transaction fees does not affect the security of the blockchain, but a study suggests that this may not be the case under certain circumstances. By making sure that verifying transactions is a costly business, the integrity of the network can be preserved as long as benevolent nodes control a majority of computing power.

The verification algorithm requires a lot of processing power, and thus electricity in order to make verification costly enough to accurately validate public blockchain. Not only do miners have to factor in the costs associated with expensive equipment necessary to stand a chance of solving a hash problem, they further must consider the significant amount of electrical power in search of the solution.

Generally, the block rewards outweigh electricity and equipment costs, but this may not always be the case. However, the efficiency of the Bitcoin system can be significantly improved by optimizing the rate of coin creation and minimizing transaction fees. Another potential improvement is to eliminate inefficient mining activities by changing the consensus protocol altogether.

Crypto marketplaces do not guarantee that an investor is completing a purchase or trade at the optimal price. As a result, many investors take advantage of this by using arbitrage to find the difference in price across several markets. The kiosk installed in Austin, Texas, is similar to bank ATMs but has scanners to read government-issued identification such as a driver's license or a passport to confirm users' identities.

An ICO may be used by startups with the intention of avoiding regulation. However, securities regulators in many jurisdictions, including in the U. In an ICO campaign, a percentage of the cryptocurrency usually in the form of "tokens" is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, often Bitcoin or Ether.

The Swiss regulatory agency FINMA stated that it would take a "balanced approach" to ICO projects and would allow "legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with national laws protecting investors and the integrity of the financial system. Bitcoin's value is largely determined by speculation among other technological limiting factors known as blockchain rewards coded into the architecture technology of Bitcoin itself.

The cryptocurrency market cap follows a trend known as the "halving", which is when the block rewards received from Bitcoin are halved due to technological mandated limited factors instilled into Bitcoin which in turn limits the supply of Bitcoin. As the date reaches near of a halving twice thus far historically the cryptocurrency market cap increases, followed by a downtrend. The falls were attributed to warnings about inflation. By comparison, in the same week, the Nasdaq tech stock index fell 7.

Compared to the blockchain, databases perform fast as there is no verification process. Early Bitcoin supporter Roger Ver said: "At first, almost everyone who got involved did so for philosophical reasons. We saw Bitcoin as a great idea, as a way to separate money from the state. Bitcoin undermines governments and disrupts institutions because Bitcoin is fundamentally humanitarian. The FATF and financial regulators were informed as the data model was developed.

As of December , the IVMS data model has yet to be finalized and ratified by the three global standard setting bodies that created it. This included a draft regulation on Markets in Crypto-Assets MiCA , which aimed to provide a comprehensive regulatory framework for digital assets in the EU.

This is a more extreme standard than banks are usually held to when it comes to other assets. However, this is a proposal and not a regulation. The IMF is seeking a co-ordinated, consistent and comprehensive approach to supervising cryptocurrencies.