PESTLE Analysis

Political
With large growth forecasted by analysts worldwide, the use of cryptocurrency is still new to
the market, it’s facing many challenges especially government regulations. Government
support or opposition are extremely influential for the future of cryptocurrency industry, both
in terms of regulation and for public sector adoption of blockchain technology. The
Government can support or oppose the implementation of cryptocurrency in the market,
therefore regulations could have both positive and negative impact on its development and
mass acceptance. Regulators globally have raised the alarm over cryptocurrencies, saying they
may aid money laundering and terrorist financing, hurt consumers and undermine trust in the
global financial system. Such concerns over security as well as criminal use of
cryptocurrencies lead to widespread government opposition and regulation. However, due to
the decentralized nature and lack of power structures inherent in cryptocurrencies, many view
regulations could stabilize the market in order to drive adoption and growth and reduce the
volatility that has been a hallmark of the industry. Regulations will offer greater legitimacy
and give users and institutional clients the confidence to invest. When Japan started regulating
bitcoin, the market dropped initially, but it roses eventually. Same happened in Australia. On
the other hand, government intervention is opposed to the original purpose of cryptocurrency
as a decentralized mechanism, and regulations hinder investor profit on tax collections. Just
like other recognizable assets such as stocks, commodity, or cryptocurrency are being affected
by mainstream global trade tussles. Major cryptocurrencies went down 10% in a week in the
early April 2018, due to the news on trade war between China and The U.S., which stem from
the U.S. attempt to increase tariffs on China imports in order to curve trade deficit and
intellectual property rights . Governments in many countries are now working on tightening
up on potential regulations in the new future, target from cryptocurrency exchanges to ICOs,
in combating the possibility of fraudsters using the currency as a means of exchange and
fighting with ICO scams. Due to the lack of global coordination among authorities, there
are wide range of opinions on how to best regulate this space, thus the rules vary from country
to country. The U.S. Jolted by the global investment craze over bitcoin and other
cryptocurrencies, U.S. lawmakers are considering new rules that could impose stricter
federal oversight on the emerging asset class, as to address the risk posed by virtual
currencies to investors and the financial system, aiming to push for digital assets to be
regulated as securities and subject to SEC’s investor protection rules. In the U.S., Digital
assets currently fall into a jurisdictional gray area between the Securities and Exchange
Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Treasury
Department, the Federal Reserve and individual states, as they all had different views on the
matter (Morgan, 2018). While the CFTC defines cryptocurrencies as “commodities”, SEC
differs and defines ICOs and cryptocurrencies as “securities”, and therefore illegal unless
registered as a security. Recently, the US state of Wyoming declared cryptocurrencies as a
type of “asset”.

England In a recent speech by the Bank of England governor Mark Caney entitled “To
Isolate, Regulate or Integrate”, although arguing that cryptocurrencies are not a viable
alternative to fiat currency in that they are poor stores of value, inefficient media of exchange,
and virtually non-existent as a unit of account (Wilmoth, 2018). However, he pointed to a
“better path”, one that is comprised of regulation for components of the cryptocurrency market
to fight fraud and support market integrity and security for the financial system at large. He
also acknowledged that crypto assets have become part of
the mainstream financial system, and cryptocurrency should be held the same standard as the
rest of the financial system.

China where the majority of Bitcoin mining took place, was once considered to be a global hub
for cryptocurrency trading. In 2017, the country gradually banned exchanges, banks, payment
providers and online connectivity to foreign trading platforms from any crypto-related
activities. However, the Chinese acknowledged the blockchain technology, and are rapidly
working on implementing and revolutionizing on industries such as logistics. Despite its
drastic bans, four out of the five largest bitcoin “mining pool” in the world are Chinese

South Korea which has rumored with a ban of cryptocurrency trade in January 2018, has
softened its stance recently. Due to the ban in China, South Korea has emerged to become a
hub of cryptocurrency. The South Korean finance market is relatively small in comparison to
other major countries such as Japan and the US. Given that the cryptocurrency exchange
market processes more trades on a daily basis than KOSDAQ, South Korea’s main stock
market, a closure of the cryptocurrency market is the same scale as closing down the stock
market, which could damage the economy of South Korea. On January 30, 2018, South Korea
banned the use of anonymous bank accounts for virtual coin trading as of to stop
cryptocurrencies being used in money laundering and other crimes. In February 2018, the
government said it hopes to normalize the virtual coin business in a self-regulatory
environment, which signals a positive sign for the market. The country’s electronics giant
Samsung has already started production of cryptocurrency mining technologies, local media
reported in January.

Thailand In a news reported by Nikkei Asian Review late March 2018, Thailand has
announced that all crypto trades will be taxed with a 7 percent added tax (VAT), and return
taxed with a 15 percent capital gains tax. This would create uncertainty in the country, driving
prospect Thai startup to move their registration for ICOs fundraising to more investment-
friendly Singapore (Zuckerman, 2018).

G20 The issue of crypto security and regulation have been among the main discussions on
2018’s G20 Summit. It has been agreed that the Financial Action Task Force (FATF), which
is an intergovernmental organization created to counter money laundering and terrorist
financing, will apply its standard to cryptocurrency policy (BlockchainDaily, 2018). The
meeting has also set a July 2018 deadline for a unilateral approach to regulation, although still
unclear on its direction, a worldwide regulation could push the cryptocurrency market to be
more stable, there provide investors more confidence.

2.1.1 Economy
Banks are significant institutions in financial and political framework of modern
economies. The global financial crisis spread distrust in financial markets and their
governance. Unleashed in the wake of the great Recession, of those who was to blame:
the middleman, the bankers, the “trusted” third parties who actually couldn’t be trusted,
of those who simply got in the way of other humans, skimming profits and complicating
transactions. Bitcoin’s unofficial catchphrase, “In cryptography we trust”, undoubtedly
trust is the single most important element in the banking industry, and thus why they
exist.

Amid G20 summit 2018, the ministers and central bank governors were warned that,
cryptocurrency could threaten international financial stability with greater use and
interconnections with the rest of the financial sectors. Crypto assets raise a host of
issues around consumer and investor protection. Cryptocurrency dangers also come
from their use to shield illicit activity and for money laundering and terrorist financing.
With the above mentioned concerns, Financial Stability Board Chair Mark Carney
urged the finance ministers to lesson the risks by working together to improve conduct,
market integrity and cyber resilience in the cryptocurrency sector (Terzo, 2018(a)).
Without these improvements, the G20 advisory unit chief cautioned confidence in the
global financial system could shrink if cryptocurrency use and interconnectedness
become commonplace and threats appear (Knutson, 2018). Will cryptocurrency
eventually substitute the current financial market, or will it work out to improve the
system? What impacts will it have on the global economy?

Cutting out the Middleman. Many concerns over its peer-to-peer nature, that it
processed a threat to the elimination of centralized banking or the need of brokers in the
capital market. Allowing peers to transact with no requirement for trust disrupt the
current business practices of organizations who facilitate trust - Banks. With the birth of
cryptocurrency, the middleman is no longer required, transaction can be done in minutes
even seconds, fees are minimal, not to mention its anonymity and privacy.
Cryptocurrencies could present investors with a viable alternative given the uncertainty
from banking’s lack of transparency. However, while enjoying these features that come
with cryptocurrency, some argue that by cutting out the middleman in the payment
processing market, cryptocurrencies are causing a huge disruption on the global
payment system in that it will be a challenge for a decentralized payment processing
protocol to prevent funding for money laundering, terrorist activities, and illicit trade in
drugs and ammunition, it will become harder to trace transactions and ascertain the
identities of participants.

In a seminar hosted in the Stock market exchange of Thailand (SET) on 26 April 2018,
Mr. Pongpiti Ekktianchai from Live FinCorp pointed out that, middleman is still needed
in the integration of blockchain technology into the financial system, due to the
complexity of its technology, general users tend not to have the knowledge to facilitate
payment on their own, at the same time investors still needs advices from professionals.

Consumer’s demands are changing and they are looking for the best and less time-
consuming services to make their life easier. The industry players started moving
towards the online business services and are adopting mobile-based technology in their
business units to reach their customer demands. The rise of online transactions has led
the demand for the cryptocurrency and blockchain technology market. Many e-
commerce merchants will likely gravitate the most popular cryptocurrency as a means
of payment, in that it eliminates the need for time-consuming verification procedures
and substantially reduce the transaction cost. However, Bitcoin is deemed both a digital
currency and a store of value, and while it has made strides as a payment method it’s
still not an option as most US and UK e-commerce business or brick-and-mortar retail
locations.

Integration of blockchain into the banking system. On the other hand, distributed
ledger technology has incredible promise for the financial industry in cost saving and
efficiency. In a statement in the G20 meeting, the bank chiefs said: “We acknowledge
that technology innovation, including that underlying crypto-assets, has to potential to
improve the efficiency and inclusiveness of the financial system and economy more
broadly” (Hopps, 2018).

Multiple global banks, including Union Bank of Switzerland (UBS), Goldman Sachs,
and Morgan Stanley, have published research on blockchain technology through in-
house efforts. A handful of large global banks with the necessary resources to research
and build large-scale projects have started to patent their own blockchain-based systems
or their underlying tech. The benefits of integrating blockchain into the banking system
are that it helps to reduce costs and improve efficiency. Banks are dealing with rising
costs for maintaining or replacing their aging infrastructure, blockchain-based solutions
could generate cost saving of up to $20 billion per year, according to a report by
Santander. Moreover, a blockchain-based banking solution would be able to compete
with Fintech companies in offering services at lower costs and faster speed. Lastly,
banks could potentially develop these systems to create brand new business models that
disrupt the financial ecosystem (Meola, 2018). South Korea’s largest commercial bank
Shinhan, has entered into a strategic partnership with OmiseGo, an Ethereum based
banking and payment platform. Shinhan, who has begun the development of a bitcoin
wallet and vault system with which bank users can safely store bitcoin in a cold wallet.
Shinhan will closely work with Omise to integrate its blockchain in various areas of the
bank’s operation, in an attempt to develop new business models and key application
opportunities, leveraging Omise’s broad portfolio of payment technology and solutions.
Shinhuacard, is expected to become the first major credit card in Asia to apply
blockchain technology (Young, 2018).

By implementing a distributed network in the banking system faces problem as well,

such as allowing participants from all over the world to share a blockchain network
raises privacy concerns. One way to avoid it would include creating a partially
distributed network where “data is only shared between those participants directly
involved in each transaction”. However, this would prove to work against the idea of
distributed systems.

By cutting out the middleman, the cost of remittance can be drastically reduced as well
as the hassle required to receive international money transfer. This eases the life of
those in the developed world, at the same time it provides a platform for illicit uses of
money transfer. In the real world, it is possible to use cryptocurrency such as bitcoin as
a means of exchange only when it doesn’t experience huge price volatility as it does at
the time of this research, given how rapidly bitcoin has surged in value it has made a lot
of people realized the potential in Bitcoin as a store of value or digital equivalent to
gold. The challenge lies on how regulations may come up with solutions to combat with
these problems, and how banks are fast enough to catch on the wave to integrate
blockchain technology to its system to compete with the fast-growing cryptocurrency
market as a medium of exchanges. The fact that crypto is perceived as an asset rather
than currency by the G20 leaders, suggest that it is unlikely there will be any great use
for a crypto coin other than as a speculative asset. Indeed, cryptocurrencies’ extreme
volatility stems from the fact that they remain in a price discovery phase, as the market
attempts to sort out what role they will play in the financial system over the long-term.
2.1.2 Social-Culture

Cryptocurrencies seem to work out for those living in less developed world countries
where the purest ideas that underlie cryptocurrency as a means of currency transfer and
equal access to everyone is on display.

Cryptocurrency seems to be driven into the mainstream as a currency and a means of

exchange by economies that are failing rather than thriving. Places lacking in financial
infrastructure or highly inflated currencies are more likely to identify Bitcoin as an
alternative measure for transaction. In the US and most developed countries, bitcoin is
primarily a speculative investment. But in some fail states, years of political instability
and poor governance has plunged some nations into devastating economic crisis, bitcoin
thrives as both a real currency and a viable means of storing value. In Venezuela, where
inflation topped 2,616 percent in 2017, cryptocurrency is a way around restrictions on
holding foreign currency, and in some cases, a means of survival. People with jobs that
pay them in US dollars or other foreign or cryptocurrency live in a different reality than
those who are paid in bolivars (Voge, 2018).

On 20th February 2018, the Venezuela government officially launched the pre-sale of its
first oil-backed cryptocurrency Petro (PTR), as a form of legal tender that can be used to
pay taxes, fees and other public needs, it can be purchased with fiat currencies and other
cryptocurrencies. The petro’s price would depend on the price of a barrel of Venezuelan
oil from the previous day. According to the government’s announcement, “Petro is born
and we are going to have a total success for the welfare of Venezuela”, as extreme
inflation drags the bolivar down, the country is facing its deepest recessions ever seen,
which result in food, sanitary and medical shortage, increased crimes, and essential
public services have buckled under the strain. The country’s citizens currently use
cryptocurrencies to survive the government’s failures. However, the token has attracted
its share of opponents, including members of the opposition-controlled Congress in
Venezuela, stated the token as “illegal and unconstitutional” and accused it of serving as
a vehicle for corruption and “effort to illegally mortgage”. In the U.S., some senior
lawmakers have expressed concern about the use of the petro to avoid economic
sanctions that have been imposed on the country. According to Chinese credit rating
giant, Dagong Global Credit Rating, it points out the insurance of an oil-backed
cryptocurrency is significant as it differentiates it from other cryptocurrencies like
bitcoin that aren’t backed by any assets. Being backed by the country’s oil reserves
means the Petro is protected from speculation and volatility. However, Petro’s backup
reserves aren’t renewable, the cryptocurrency’s success, as such, will depend on
Venezuela’s ability to create wealth, Dagong reports (Memoria, 2018).

Reduce Remittance cost and protect own asset The case of Bitcoin in Africa
highlights several interesting elements, cryptocurrencies and mobile transfers have
created an opportunity for people in Africa to control and protect their assets. In
countries where there are political crisis and economic turmoil, people live in a chaos,
which in turn caused them to lose their trust to the government and the financial
institutions, in search for survival they look for a more secure method to protect their
assets - the existence of cryptocurrency. In Africa, the access to financial services such
as traditional bank accounts, credit cards, PayPal and even expensive cost for
international transfer are very much limited, which have contributed to the practical
need for non-traditional means of transferring and holding money. There is a significant
amount of Africans that work overseas that send money home to their families,
cryptocurrency offers the solution as a means of transferring currency that’s easy and
fast (Brown, 2018). For instance, using BitPesa’s remittance platform, transaction fees
for individuals and businesses range from 1 to 3 percent, as compared to the up to 20
percent by established money transfer companies. In addition, a transfer that might
normally take up to a week can be done in one day.

According to figures released by the World Bank in 2017, the recorded remittance to
developing countries in 2016 was about $441 billion, more than half of the total
recorded global remittance (FundYourselfNow). The figures also revealed that global
remittance fee for sub-Saharan was an average of $20 per $200 which as the highest in
the world. These figures can almost tell that the global remittance system is based
mainly on activities of citizens of developing countries who are immigrants in the
developed world. The problem kicks in when these individuals have to send money
back home, in order to do so, they have to rely on intermediary services like Western
Union, Money Gram, Uni Transfer etc. These platforms collect fees and charges which
considerably increase the cost of transaction. With digital money, people will be able to
wire money abroad at a lower cost.
Cryptocurrency offers opportunities for those small and medium-scale businesses to
conduct international business without having to go through the complicated process of
traditional banking processes. It is often a challenge for many merchants in developing
countries as they have no access to foreign exchange as well as means to pay and
receive money in foreign currency. Crypto banking platforms enable a much greater
market penetration than banking services, a mobile phone app is all that’s needed. A
good example is BitPesa, BitPesa is a digital foreign exchange and payment platform
for frontier markets. It allows the purchase of bitcoin and international business making
payments to and from Africa. Not only they offer simple and low-cost international
money transfers, they also offer crypto-backed loans to small-scale and medium-scale
merchants. These enable opportunities to expand their business into a global scale.

Philanthropy and international aid Donating to blockchain powered charity will

provider donator to track the donation and make sure it moves through the organization
to the final recipient. Bitcoin and other cryptocurrencies are not being accepted in the
fundraising process in charities and NGO foundations. In doing so, the foundations
exchange cryptocurrency donations through an online wallet for dollars or other fiat
currencies at the going exchange rate. In addition, a handful of organizations have
created customized “charity coins” to raise money for specific nonprofits or social
impact projects in a transparent way. For example, donors can buy “Root tokens”, to
fund anti-poverty work projects. Another example is the launch of an initiative by the
BitGive Foundation call “GiveTrack”, which allows bitcoin donors and the public “to
trace nonprofit transactions on a public platform in real time to see how funds are spent,
ensure they reach their final destination, and track the results generated from
contributions” (Lehr & Lamb, 2018). The United Nations World Food Program (WFP),
provided Syrian refugees based in Jordan with digital currency vouchers to trade at
selected markets, eliminated the dangers of carrying cash, and gave the organization a
more effective and less expensive method for distributing and tracking payments. Even
in China, “Ant Love” a unique blockchain donation system established by Alibaba,
allows Alibaba’s 450 million users to donate to various charitable groups and NGOs.
The system also lets donors track their track their transaction histories, and where and
how the organizations utilize the fund ( Lehr&Lamb, 2018).
2.1.3 Technology

Cryptocurrencies are built on a breakthrough technology called “Blockchain”.

Blockchain is an open-sourced public ledger that underpins cryptocurrencies. It is a
digital record of information secured and verified through cryptography, it stores and
then distributes this information across a network of computers. Each computer has a
copy of the blockchain – a chronological list of every transaction ever made. Once a
transaction is added to the blockchain it can’t be edited or deleted. Blockchain
technology is touted as having the capacity to be revolutionary in various sectors such
as finance, e-commerce, health, logistics, real estate, and jewelry industries, etc., even
fighting against corruptions. The transparency and security of data stored in a
blockchain facilitate trust and efficiency between users in an unprecedented way.

Marie Wieck, IBM’s general manager of blockchain, indicated that Blockchain has its
origins in digital transformation and disruption, it is the answer to the 2008 financial
and mortgage crisis. A rather interesting note is that most people focus on blockchain’s
initial entry point and use case, Bitcoin. They associate anything blockchain with
Bitcoin and that is not right. There is much more to blockchain than Bitcoin and
cryptocurrencies. Currently IBM is working on its hyperledger project on food-chain
safety and digital identity.

One of the biggest disadvantages of having a centralized data storage system is the risk
of data breaching of consumers’ private info. Equifax, one of America’s three major
credit reporting agencies, announced back in September 2017 that their system had been
breached, exposing the information of approximately 143 million consumers, the
affected data included sensitive materials such as Social Security numbers, driver’s
license numbers, and even credit card numbers (Bernard, 2017). This is where
blockchain technology kicks in, to help build the infrastructure needed to prevent these
types of breaches. By distributing information across an entire network, the risk of
being compromised due to a single point of failure is mitigated.

Healthcare & Insurance. Implementation of blockchain technology into healthcare

industry makes patient record sharing among healthcare providers seamless and instant,
improving the quality care received while reducing cost. It reduces the time for the
tracking of healthcare records within the hospital, or even if a patient is in an emergency
he/she can visit the nearest hospital with the ability to access to access the medical care
history instantly. This would benefit both consumers and healthcare providers. Records
stored on blockchain would be instantly available to all authorized healthcare providers
resulting in improved accuracy and medical diagnosis. The same principle works for the
health insurance industry.

Logistics. Implementation of blockchain technology in the logistic shipment is one of

the first successful use cases that helps to facilitate efficiency and save costs. China’s
Petrochemical giant Sinochem has successfully completed a shipment of gasoline using
blockchain technology in early April 2018. It is said that it was the first time that
blockchain applications have been applied to all key participants in the commodity
trading process. Sinochem claimed on its website explaining how the digital bill of
landing and smart contracts could save 20%-30% financial costs (Tahir, 2018). With
China demanding more imports of crude oil, implementing a cost-effective method for
China’s future petrochemical trades and shipments will benefit the country in the long
run.

Food chain safety. In this health-conscious era, people are interested in the origin of the
food they consume every day, such as whether or the food is organic or Fair Trade. For
a retailer, blockchain helps to know whom and where his supplier has had dealings. For
consumers, blockchain technology can make a difference. By reading a simple QR code
with a smartphone, data such as an animal’s date of birth, use of antibiotics,
vaccinations, and location where the livestock was harvested, can easily be conveyed to
consumers (Charlebois, 2018). Such technology also helps to track products in case of
food-borne illness outbreaks. By using blockchain in the completely connected supply
system, it took only two seconds rather than weeks to trace the origin of the outbreak.
Food companies can save lives by using blockchain technology, the end result is the
empowerment of the entire chain to be more responsive to any food safety disasters.
Walmart has partnered with IBM to build a map of food supply chain to be able to track
produce to promote safety in case of food-borne illness outbreaks. By using blockchain
in the completely connected supply system, it took only two seconds rather than weeks
to trace the origin of the outbreak (Eissler, 2018).
Property sales and land ownership rights. Another groundbreaking use of the
blockchain is facilitating property sales and securing land ownership rights. In China,
due to the government control of its monetary policies especially on its currency
outflaw, it imposes difficulties for the citizens who wish to invest in property outside
the countries. An anonymous, secure currency with no ties to a central banking
authority, cryptocurrencies offer the perfect solution. OneGram, a Dubai based
cryptocurrency, each coin is backed by a gram of gold and sharia-compliance, is
expected to facilitate sales for the local real estate developer like MAG lifestyle
Development. On the other hand, blockchain technology also works to secure property
and land ownership rights. In many parts of the developing world, proof of land or
property ownership is a challenge. With records store in the paper form from behind
closed doors in closed systems, it is possible to counterfeit paper document and engage
in fraud. With blockchain, once information about the land, the buildings, sales history
or records from inspections are put in the ledger, it is immutable, meaning that there’s
no way to falsify, alter or delete it. It will all be publicly visible and never be reversed.

Diamond Industry. If you are not an expert, identifying the authenticity of a diamond
can be challenging. A London-based company called Everledger has placed more than
1.6 million diamond on a blockchain to determine the provenance of diamond products
to help prevent the flow of “blood diamonds.” The technology has enabled diamond
suppliers to replace a paper certification process with a blockchain ledger (Roberts,
2017). Entries on the digital ledger include dozens of attributes for each diamond, such
as color, carat, and certificate number. The technology can also apply to other luxury
products such as Wine and fine art.

Fight against corruption. Another role of cryptocurrency in politics is its ability to

fight against corruption. In developing countries, misappropriation of state funds by
corrupt government officials is a big problem. by using blockchain technology,
especially those built upon smart contracts protocol, it will allow for a more transparent
contract system, with records being public, citizens will be able to monitor the way in
which state funds are being utilized. Another area of interest to fight against corruption
with blockchain technology is the election process. It can be used to make elections to
become more free and fair with the citizens being able to freely exercise their franchise.
Blockchain systems such as Ballotchain can manage online elections with anonymous
voting that participants can verify at any time, and then each ballot cast is encrypted and
securely transmitted. The system ensures that voters cannot vote twice or commit
electoral fraud, thus ensuring the integrity of election processes.

Identity rights Political crisis in some middle-east countries has forced many of its
civilians to flee their countries without an identity. According to the World Bank, an
estimated 1.1 billion people, including many millions of children, women and refugees,
globally lack any form of officially recognized identification (Desai, 2017). The
hardship faced by refugees and asylum seekers are compounded in the absence of
identity documents. Those traveling without an ID are likely to face barriers or delays
when attempting to cross international borders and when registering with authorities
and/or humanitarian organizations. ID2020, an open-source, self-sovereign, blockchain-
based identity system seeks to address these problems. Being developed by an alliance
of large companies like Accenture and Microsoft, with UN agencies, private sectors and
governments, it aims to help undocumented people secure elements of identity, from
children’s vaccination cards, voter registrations, to refugee asylums (Hempel, 2018). In
an upcoming pilot program, the alliance will incorporate blockchain into a biometric
system used by the United Nations refugee agency, UNHCR, to facilitate transactions
like cash transfer, shelter or food.

Paperless society. Paperless trade was initially used through electronic means,
however, the security and authenticity of documents are still not guaranteed. The only
way to ensure that documents remain safe from tampering is to use a decentralized
network which can only be accessed by its participants (Tahir, 2018).

While the implementation of blockchain is not yet widespread, the shared, open and
secure attributes of blockchain will create confidence and reliability, exploration of
applications is growing exponentially. However, regulation on cryptocurrency market
may also put a limit on the blockchain sector.
2.1.4 Legal

Like all currency, cryptocurrencies can be exploited for criminal use, a secure and
completely anonymous system of cryptocurrency exchange can severely hamper
government agencies in their attempts to identify criminals. Bitcoin can be laundered
and used to subsidize black-market enterprises. It is well-known that bitcoin has been
used in the purchase of illegal drugs on Silk Road, where anonymity safeguards the
identity of both buyer and seller. Bitcoin is also the preferred donation option for the
notorious hacking group LulzSec. Criminal enterprises require huge subsidization of
capital, Bitcoin and digital cryptocurrency are their preferred means of funding.
Individuals interested in using bitcoin for illegal transactions, would simply cycle
through and change their public keys, therefore, each new transaction would
conceivably have a new address. This presents another layer of difficulty for law
enforcement officers in attempting to cracking down the fraudster. The anonymity is
arguably the greatest selling point of bitcoin technology for individuals that seeking to
mask their identity.

In combat with these criminal uses of cryptocurrency, many governments are working
on regulations to suppress such illicit uses. Meanwhile, in Thailand, the government
announced regulations for cryptocurrency and ICOs by the end of March 2018.
according to Thai Rath, cryptocurrency and ICO business intermediates will be required
to identify themselves and the sources of crypto investment funds in order to prevent
money laundering. It requires the registration and know-your-customer (KYC)
compliance of cryptocurrency operators including agents, dealers, and brokers. These
businesses will be obligated to provide transaction information as well as the names of
buyers and sellers to the Anti-Money Laundering (AML) Office.

While cryptocurrencies may pose significant risks, the underlying technology may be
the solution to mitigate the risks created. These mitigating solutions would take the
form of distributed ledger technology (DLT) that works as a permissioned blockchain to
keep financial institution and regulators coordinated, along with biometrics and artificial
intelligence to improve digital security and identify suspicious behavior (Glazer, 2018).
The anonymous nature of cryptocurrency transactions makes them well-suited for a host
of illicit activities, such a money laundering, terrorist financing and tax evasion. There
are ways to combat with it, including government restrictions on registrations of
cryptocurrency transactions and ICO business intermediates. Furthermore, advanced
technology of DLT may be able to keep financial institution and regulators coordinated
to combat with digital crimes. Furthermore, currently the cryptocurrency industry is
falling in a jurisdiction grey area between being a currency, property, security or
commodity. The outcome of the definitions will be different in that they are governed
by different statutes, regulated by different agencies, and operate in different markets.
The difference affects buyers, sellers, and investors.

2.1.5 Environment

The creation of digital currencies requires significant energy inputs. Bitcoin is created
through an energy-intensive “mining” process that uses high computing power to solve
a complex mathematical equation, proving an anonymous miner used the process the
network agreed upon to build the blockchain record of transactions. Upon a successful
completion of the equation, miners then get bitcoin as reward (Cheng, 2018).

Bitcoin mining consumes energy and it requires specialized powerful hardware are
major sticking points, these custom hardware can cost several hundred to a few
thousand dollars. Due to escalating demand for coin mining, GPUs (Graphics
Processing Unit) are now selling for double their value-price, miners from around the
world are turning to Asian markets located in Hong Kong and Singapore for cheaper
GPUs. According to Fundstrat’s model, it assumes electricity costs of 6 cents per
kilowatt hour and other expense to arrive at the break-even estimate of $8,038.

According to Digiconmist, in 2017, the estimated power consumption associated with

Bitcoins exceeded 30TWh (terawatt hours), this level is higher than the total energy
consumption of Ireland, and 19 other European countries (Bentley, 2018). Each
transaction consumes roughly 100 kWh- the equivalent to running a light bulb for three
months. By contrast, a credit card transaction uses about 0.2 kWh (AFP, 2018). Worse
than that, the majority of the power it produces is generated by coal-fired power
stations, ultimately giving Bitcoin a massive carbon footprint. This trend is expected to
continue as Bitcoin and other cryptocurrencies grow, the power consumption of their
networks is predicted to continue increasing, by January 2019, Digiconmist expects
Bitcoin to reach 125TWh, 4 times greater than the figures from 2017 (Bentley, 2018).
This process threat for the global energy ecosystem, marking the networks more energy
efficient will be the next steps in ensuring the markets are less damaging to the
environment.

The challenges for cryptocurrency mining to combat with its carbon footprint and be
more environmental friendly, there are ways such as promoting the use of renewable
energy to mine coins, and to use more efficient hardware that will need less energy. To
achieve this goal, a clear governance structure can play an important part on generating
more standards, rules and best practices. However, Bitcoin was created to be controlled
by users and not by a government or corporation, the push for scale to save on energy
costs and go green also risks pushing bitcoin against its founding philosophy.

Cryptocurrency mining requires immense computing power across huge networks of

computers all working together, thus consumes enormous amount of energy and
requires specialized hardware, ultimately leave a massive carbon footprint and cause
global warming. As the cryptocurrency market continues to grow, the power
consumption is expected to increase as well. By promoting the use of renewable energy
and generate a clear governance structure, it is possible to make the network more
energy efficient and more environmental friendly.