Cryptocurrencies: The Revolution in the

World Finance
Sanjeev Kumar Joshi, Nitesh Khatiwada, Jyoti Giri
MBM, Nepal Commerce Campus

Abstract
The cryptocurrency is thought to be the next internet revolution,
where transactions are done utilizing peer-to-peer network
creating a block- chain of the participants involved. Therefore, it
is in totality creating a new virtual world, which might change the
course of the foreseeable future finance.
The reaction to the block chain and cryptocurrency is
synonymous to the reaction to the internet when for the first
time it emerged. While it is widely accepted for transactions in
some countries; for instance in Nepal, it is illegal.
Where the basic knowledge about the cryptocurrency is scarce in terms of Nepal,
this article attempt to connote the grass root construct on cryptography . The
question arises that what are the future undertakings of cryptocurrency and its
application which will be systematically reviewed in this paper.

Key Words: Cryptocurrency, Bitcoin, Block Chain, Cryptology, Peer-to- peer

network.

INTRODUCTION
Background
While cryptocurrency has been studied since the 1980s (Heilman, Kendler, Zohar, &
Goldberg, 2015), Satoshi Nakamoto (a presumed pseudonym) in 2009 introduced the first ‘open’
virtual cryptocurrency entitled ‘Bitcoin’. The notable fact about the currency is it do not require
banks to process payments (Grinberg, 2011) and is self-regulatory – not requiring any central
regulatory authority (Reynolds & Irwin, 2017).
Cryptocurrencies are digital token produced from cryptographic algorithms, transported
across cyberspace using protocols such aspeer-to-peer networking differently distinguishable thru
three key characteristics-electronic, not the liability of anyone (Harvey, 2015) and feature of peer-
to-peer exchange(Bech & Garratt, 2017). Doc Searls Weblog, 2017, refers cryptocurrencies are as
a digital asset designed to work as a medium of exchange using cryptography to secure the
transaction and to control the creation of additional units of the currency. The regulation of the
currency is

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possible through a digital record-keeping device that uses balances to keep track of the obligations
from trading among peers and that is publicly known to all traders (Chiu & Koeppl, 2017). There is
no central authority that governs the system; instead the rules governing the system (e.g., defining
what constitutes a valid transaction, specifying the total supply of the digital token and its issuance
scheme, etc.) are enforced by all network participants (also called ‘nodes’) (Rauchs, 2017).
With crucial benefit of the security features; ease of use on mobile devices; relatively
cheaper costs of production and transmission via the block-chain transmission protocol; and
low long-term inflation risks (Harvey, 2015). In the recent years, cryptocurrencies have been
increasingly utilized for international transactions, and it is possible their use might expand in the
future. However, the innovation in cryptocurrency is still very much in the early stages of
adoption. As a result, there are much more issues to be surpassed, particularly for if a central bank
will legitimately look at including Bitcoin, for instance, in its reserve mix (Moore & Stephen,
2015). Evidences from most early adopting jurisdictions suggests cryptocurrencies as an asset and
hence comprises the subject of capital tax implications on the sale and purchase (Moore &
Stephen, 2015). Per se, being very innovative, unconventional and somewhat mysterious
phenomena in a modern financial system, it is sometimes presented for as a mode of future of
payments and a sign of new emerging economy shaped by centuries of money evolution, evolving
regulations and social interactions that are not confined to virtual world(Dostov & Shust,
Cryptocurrencies: an unconventional challenge to the AML/CFT regulators?, 2016).
(Dandapani, 2017) Notes peer coin is the first scientific computing cryptocurrency. Such
currencies are usually aimed at issues broader than just payments: both bitcoin and Digi cash
(Brown & Duguid, 2002) , have certain political connotations(Dostov & Shust, Cryptocurrencies:
an unconventional challenge to the AML/CFT regulators?, 2016). Unlike most other currencies
generic held by the central bank in their international reserves, the supply of those currencies is not
controlled by a central bank but by a highly complex iteration of a mathematical proof (Moore &
Stephen, 2015) . Similarly, counterfactual simulations done over the period 2009 to present
suggests that adding Bitcoin to the reserve portfolio of the central bank would not significantly
increase volatility but could provide opportunities to offset exchange rate depreciations against
major currencies such as the Pound and the Euro (Moore & Stephen, 2015)
Besides, there has been a proliferation of virtual currencies across the globe, includes
Facebook Credits, Microsoft Points and Amazon coins (Moore & Stephen, 2015) amongst others.
With facts that global financial corporations such as Citibank are developing their own
cryptocurrency due to these perceived benefits of utilizing the aforementioned protocols (Madore,
2015). Unlike cash, a cryptocurrency keeps track of the history of all transactions. This is done by
forming a block-chain.
The existence and development of cryptocurrency are so bold, inevitable and futuristic that
a number of central banks recently started to explore the adoption of cryptocurrency and block-
chain technologies for retail and large-value payments, for instance, the People's Bank of China and
Bank of England aims to develop a nationwide digital currency based on block-chain technology;
the Bank of Canada, Monetary

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Authority of Singapore are studying its usage for interbank payment systems (Chiu & Koeppl,
2017). Though cryptocurrencies are an area of heightened pecuniary, numismatic, technological,
and investment interest, a comprehensive understanding of the theories and foundations is still left
wanting among many practitioners and stakeholders (Chohan, 2017).
Since 2009, numerous cryptocurrencies have been developed, with, as of February 2017, 720
in existence (Chen, Chu, Nadarajah, & Osterrieder, 2017), Bitcoin is the largest and most popular
representing over 81% of the total market of cryptocurrencies (Chen, Chu, Nadarajah, & Osterrieder,
2017). By 2013 Bitcoin’s valuation exceeded US
$2 Billion, the only cryptocurrency to achieve such a high valuation (Dandapani, 2017), has on 10th
November, 2017 recorded at $ 6575 shows a decline by 9.59% and $ 693.0303 in currency
denominations (Russo, 2017). The combined market capitalization of all cryptocurrencies is
approximately USD $19 billion (as of February 2017), with the top 15 currencies representing over
97% of the market, and seven of these accounting for 90% of the total market capitalization. Each
cryptocurrency is riskier than the Euro (Chen, Chu, Nadarajah, & Osterrieder, 2017).
A notable study suggests that the main issues with the adoption of cryptocurrencies include an
early track record of illiquidity, high volatility and potentially nebulous uses.

Purpose of the Study

The major purpose of the study is to give a brief introduction of cryptocurrency to the
readers.
The specific purpose of the study is streamlined as under
• To know about the existence and use of cryptocurrency.
• To understand the working mechanism of the cryptocurrency.
• To examine the current development in the field of cryptography.
• To understand the implication of cryptocurrency.
• To path a way forward for the like studies in the future.

Limitations of study
The study was primarily designed to include interviews and opinion survey of the experts
pertaining to banking, capital market, Information Technology (IT) experts, and financial experts
including professionals backed by the article reviews of the pertinent field. However, due to lack
of in-depth knowledge and understanding in the field andquestion posed on its legality put
constrains for this article to be portrayed as more realistic and practical.And hence only review of
article could be incorporated under the study.
Put differently, the reviewed articles originate from the developed nations. Hence,
unavailability of adequate literature at Home County has imparted its effect on the analysis,
comparison and conclusion of the study.

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Definition of the Terms
Cryptography
Cryptography is the transformation of readable and understandable data into a form which
cannot be understood in order to secure data. Cryptography refers exactly to the methodology of
concealing the content of messages, the word cryptography comes from the Greek word "Kryptos",
that means hidden, and "graphikos" which means writing (Kumari, 2017).

Cryptocurrency
A cryptocurrency is a digital or virtual currency that uses cryptography for security. A
cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a
cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any
central authority, rendering it theoretically immune to government interference or manipulation
(Silver, 2017).

Cryptology
The study of secret codes or ciphers and the device used to create and decipher them is
termed as cryptology(Collins, n.d.). Such study is based on the fundamental assumption of
encryption and decryption.

Block Chain
A block-chain is a digitized, decentralized, public ledger of all cryptocurrency transactions.
Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to
it in chronological order.It allows market participants to keep track of digital currency transactions
without central recordkeeping. Each node (a computer connected to the network) gets a copy of the
block-chain, which is downloaded automatically (Silver, 2017).

Peer to Peer Network

A network of computers configured to allow certain files and folders to be shared with
everyone or with selected users. Peer-to-peer networks are quite common in small offices that do
not use a dedicated file server. All client versions of Windows, Mac and Linux can function as
nodes in a peer-to-peer network and allow their files to be shared (Giles, 2006).

LITERATURE REVIEW
Cryptocurrencies are physical precomputed files utilizing a public key /private key pairs
generated around a specific encryption algorithm. The key assigns ownership of each key pair, or
‘coin,’ to the person who is in possession of the private key. These key pairs are stored in a file
named ‘wallet.dat,’ which resides in a default hidden directory on the owner’s hard drive (Heid,
2013). Cryptocurrency is neither commodity money nor fiat money. It offers a new mix of
technical and monetary characteristics that raise different economic questions than other kinds of
currencies (Blume, 2014). It has many of the characteristics of a precious metal based coinage
with a form of

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inherent value, rather than a government-backed currency used for trading of value. The
decentralized model for the creation and control of the cryptocurrencies means that they are a
disruptive influence on traditional currencies as they are not easily subject to central control
(Taylor, 2015), and since they are encrypted and facilitate digital barter, may revolutionize digital
trade markets by creating a free flowing trading system without fees (DeVries, 2016). Further,
since they are payment instrument rather than private currencies, their embeddedness’ in the
financial system minimizes the ML/FT risks (Dostov & Shust, Cryptocurrencies: an
unconventional challenge ti the AML/CFT regulators?, 2016).
Cryptocurrencies offer confidentiality and privacy of transection as well. It uses complex
hashing and time stamping methodologies to uniquely identify each coin within that currency.
Crypto currency systems generally claim to provide anonymous, decentralized processing of
transactions (Sufian Hameed, 2016). In a political economy sense too, it may be valuable to have a
cryptocurrency with a stable purchasing power to allay fears of adoption, even if the currency would
nevertheless not sustain widespread growth until the regulations preventing intermediation are
relaxed (Harwick, 2016).
These currencies might be prone to double spending attacks (Narayanan, Bonneau, Felten,
Miller, & Goldfeder, 2016) which depends on individual incentives to reverse a particular
transaction (Chiu & Koeppl, 2017). This can be mitigated through designing alternate
cryptocurrency called Scrooge-Coin (Chiu & Koeppl, 2017).
(Reynolds & Irwin, 2017) Found that to keep up with a rapidly expanding global
environment, and with the gap between the ‘global’ and the ‘local’ becoming smaller, criminals
are adopting new forms of currency, such as cryptocurrency, to increase the level of anonymity
afforded to their illicit activities. Further, the compliance and implementation of anti-money
laundering legislation and customer identification security standards are insufficiently utilized
within some exchange services, resulting in more technologically adept, or well-funded, criminals
being able to circumvent identification controls and continue to transact without revealing their
identities.

RESEARCH METHODOLOGY
This article is based on both qualitative and quantitative data. Various sampling mean data
were collected through SPSS and various surveys were conducted in order to gather data.

FINDINGS
Many of the technologies we now take for as granted were quiet revolutions in their times.
Be it internet, smartphones or smart technologies, they have changed the way we live and work.
These thing has been around for merely a decade and they have changed the whole business and
living style landscape around the world.
Another revolutionary digital phenomenon is block-chain/crypto currency. The following is
an insight on the technological development (Gupta, 2017):
• The first major block-chain innovation was bitcoin, a digital currency experiment. It
is used by millions of people for payments, including a large and growing remittances
market.

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 • The second innovation was called block-chain, which was essentially the realization
that the underlying technology that operated bitcoin could be separated from the
currency and used for all kinds of otherinter- organizational cooperation. Almost
every major financial institution in the world is doing block-chain research at the
moment, and 15% of banks are expected to be using block-chain in 2017.
• The third innovation was called the “smart contract,” embodied in a second- generation
block-chain system called ethereum, which built little computer programs directly into
block-chain that allowed financial instruments, like loans or bonds, to be represented,
rather than only the cash-like tokens of the bitcoin. The ethereum smart contract
platform now has a market cap of around a billion dollars, with hundreds of projects
headed toward the market.
• The fourth major innovation, the current cutting edge of block-chain thinking, is
called “proof of stake.” Current generation block-chains are secured by “proof of
work,” in which the group with the largest total computing power makes the
decisions. These groups are called “miners” and operate vast data centers to provide
this security, in exchange for cryptocurrency payments. The new systems do away
with these data centers, replacing them with complex financial instruments, for a
similar or even higher degree of security. Proof-of-stake systems are expected to go
live later this year.
• The fifth major innovation on the horizon is called block-chain scaling. Right now,
in the block-chain world, every computer in the network processes every transaction.
This is slow. A scaled block-chain accelerates the process, without sacrificing
security, by figuring out how many computers are necessary to validate each
transaction and dividing up the work efficiently. To manage this without
compromising the legendary security and robustness of block-chain is a difficult
problem, but not an intractable one. A scaled block-chain is expected to be fast
enough to power the internet of things and go head-to-head with the major payment
middlemen (VISA and SWIFT) of the banking world.
On 5th of December, 2013 a proposal was made by few members of the Swiss parliament
calling Swiss government for assessing the utilization of bitcoin currency by the financial sector
shedding light on bitcoins and other cryptocurrencies from legal standpoint(Yeghiazaryan). Swiss
government stated to be neutral to usability of virtual currencies like bitcoin. While cryptocurrencies
are legal in 96 countries of the world (including USA, Canada, Australia, European Union), in
many of the countries it is illegal (example Nepal) for the fact that bitcoin can be anonymously
used to conduct transactions between any account holders, anywhere and anytime across the
globe, makes it attractive to criminal elements. They may use bitcoins to buy or sell illegal goods
like drugs or weapons. Most countries have not clearly made determinations on the legality of
bitcoin, preferring instead to take a wait-and-see approach (example Russia). While some
countries are developing cryptocurrencies of their own (example

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China, Britain). Some countries have indirectly assented to the legal usage of bitcoins by enacting
some regulatory oversight. However, bitcoin is not legally acceptable as a substitute for a
country’s legal tender.
The cryptocurrency world is evolving at such a dizzying pace that it can be hard to take in
the magnitude of everything that’s happening in bitcoin. 2017 has been a record-breaking year for
bitcoin. From transactions to trading volume, and from wallet installations to market cap, every
possible metric has been surpassed, shattered, and then shattered again (Sedgwik, 2017).
The Statistics about
Bitcoin
Overview
Current Bitcoin Supply 16.67 Million
Crypto Market Dominance 58%
24 Hour Trade Volume $ 4.9 Billion
Transaction
Countries where bitcoin usage is unrestricted. 96
Transactions per hour. 12,000
BTC sent per hour. 99,000
Average transaction value. 0.103 BTC
Mining
Network hash rate in TH/s. 11 million
Block chain size. 166 GB
Mining rewards in the last 24 hours. $12.8 million
Blocks mined in the last 24 hours. 129
Bitcoin transactions confirmed in the past 24 hours. 326,000
Ownership
Amount of bitcoin owned by just 4% of addresses (containing 2.9 million BTC). 96%
Number of addresses richer than $10,000. 457,000
Number of active addresses in the last 24 hours. 715,000
Value of the 100 richest bitcoin addresses. $19 billion
Number of Bitcoin wallets downloaded. 500,000
Popularity
Number of subscribers on r/Bitcoin. 400,000
Number of bitcoin tweets sent per day. 80,000
Source: Bitcoin by numbers: news.bitcoin.com

Cryptocurrencies are also prone to the financial bubbles.Its price is up 600% over the past 12
months, and 1,600% in the past 24 months. At over $4,200 (as of 5 October), a single unit of the
virtual currency is now worth more than three times an ounce of gold. Some bitcoin evangelists
see it going far higher in the next few years (Rogoff, 2017). The price of a single bitcoin has gone
up parabolically and at a faster pace than any other speculative vehicle in market history, as
investor enthusiasm for the new medium has reached a fever pitch(Insana, 2017).

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CONCLUSIONS AND IMPLICATIONS
The cryptocurrency is a virtual currency that is revolutionizing the payment system across
the globe. Though there are mixed reactions, with its development it will possibly be used as the
major means of payment in the future. More financial institutions and government adopting
cryptocurrencies could contribute to their growth. Not only that, the concept behind the
cryptocurrency namely block-chain and peer-to-peer network, is also making an impact in other
fields such as smart contracts.
Ease in the use of cryptocurrency, its use in terrorism financing, impact of making it illegal
and/or legal in any economy, psychological factors guiding the bubble and bursts, the application
of efficient market hypothesis, its usability in crowd funding, and many more topic in relation to
the cryptocurrency still remains to be explored forfuture researcher.

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