Cryptocurrencies - Characteristics, PROs and CONs
A cryptocurrency is an electronic means of payment and payment system that uses a peer-to-peer network which is fully decentralized and has no server or central authority.
Characteristics of Cryptocurrencies
- DECENTRALIZED: In traditional forms of currencies, central authorities and banks have control over the financial system while virtual currencies have no central authority.
- IMMUTABLE: Transaction records are accessible to the public and it's extremely difficult to change them.
- SCARCITY: Cryptocurrencies have a maximum supply which make them deflationary.
- ANONYMOUS: Cryptocurrencies have a decentralized network of users that create anonymous digital identities that they use to make transactions and authenticate them.
The first version of cryptocurrencies and the most prominent one is the Bitcoin which first appeared in 2009.
The absence of a centralized third party and the anonymity that characterizes virtual currencies make it harder for regulatory bodies to effectively fight tax fraud and money laundering.
Despite a hostile regulatory environment, cryptocurrencies have experienced uninterrupted development that is evidenced by:
- The proliferation of protocols;
- The invention of smart contracts;
- The evolution of share prices;
- The launch of Initial Coin Offerings (ICO);
- The launch of the stablecoins project by Facebook that is called "Libra".
⇒Can you think of a possibility to both benefit from cryptocurrencies' advantages and also fight against tax evasion and money laundering?
William O'Rorke & Alexandre Lourimi., (2020) "Cryptomonnaies et LCB-FT: Etat des lieux", Revue internationale de la compliance et de l'éthique des affaires, 2020, February, pp. 6-17