Bitcoin and Cryptocurrency as a New Innovation in Economical Field

Introduction

Cryptocurrency is a peer-to-peer type of electronic cash, in its purest form. It allows direct transmission of online payments from one entity to another without passing through a financial institution. The network time-stamps transfer using job verification cryptography (Nian and Chuen, 2015). Bitcoin is a financial network that enables electronic money to be exchanged between users. Bitcoin consists of a specific chain of digital signatures that is held on the user's computer in a digital wallet. The wallet contains keys that are used to send and receive coins. A bitcoin exchange is allowed as the coin's current owner uses a proprietary digital key to accept applying the recipient's code to a previous payment sequence. The coin is then transferred and now appears with recorded transaction history, including the one just completed, in the recipient's wallet (Bjerg, 2016). To cybercriminals, Bitcoin has become the currency of choice. Particularly appealing to illegal organizations, in general, are its distinguishing features of decentralization and pseudo-anonymity, and yet Bitcoin has been classified as posing only a low risk of money laundering. In many cases, cryptocurrencies are still viewed as an obscure, fringe concept confined to the specialists ' purview.

The hackers who took control of the servers of Lincolnshire County Council with ransomware unsuccessfully requested a meagre $500 in bitcoin in January 2016 (Daily Telegraph, 2016). In November 2015, a team of cybercriminals named the Armada Collective allegedly threatened three Greek banks with dire consequences unless they charged ' hundreds of thousands of Euros ' in Bitcoin (Deutsche Welle, 2015). Also, mobile phone service attackers TalkTalk tried to extort £ 80,000 in exchange for not releasing the company's compromised customer data, including in Bitcoin. These are just a few recent examples of a growing criminal activity catalogue in which Bitcoin has been nominated as the preferred payment method (Krebs, 2015).

While cryptocurrencies in general, and Bitcoin in particular, are relatively recent developments, they warrant a much broader awareness and coverage inside criminal justice circles than is currently the case. To date, cryptocurrencies tend to have been regarded as a fringe interest reserved for some experts, but cryptocurrencies are now in danger of becoming a mainstream element (Brown, 2016). In this paper, we will discuss a variety of views about the cryptocurrency, especially bitcoin.

Bitcoin as a Unit of Account

Lo and Wang (2014), argues that Bitcoin does not serve as an accounting unit because the use of Bitcoin as an accounting unit is so far largely extracted from its medium-of-exchange feature, although merchants that accept Bitcoin as payment prefer to post prices in normal currencies, such as dollars or euros, instead of bitcoins. However, as has already been discussed, many of them have opted to minimize the risk of exchange rates by quickly or often exchanging Bitcoin into standard currency. This is because the price of Bitcoin has been highly volatile, especially over the past year or so. While Alfeieri et al; (2019), Think Bitcoin could be regarded to some degree as a 'payment module.' Bitcoin values are not advertised by retailers, though, for two reasons. firstly, it is inelastic to supply a specified item (a bitcoin price requires several digits after the comma). Secondly, uncertainty does not ensure price stability. Because of the high volatility, retailers were constantly forced to change the prices of their goods. Prices are usually shown in US dollars and translated at the point of sale to bitcoins.

By contrast, Yermak disagrees with the fact that Bitcoin is an accounting unit. Bitcoin faces several hurdles in becoming a useful account unit. One issue stem from its extreme volatility, a topic discussed in more detail below. Because the value of a bitcoin varies greatly daily compared to other currencies, retailers that accept the currency must very frequently recalculate prices, a practice that would be expensive for the merchant and confusing for the consumer. In principle, this issue would recede in an economy that used bitcoin as its main currency, but there is no such place in the world of today. Perhaps the most serious obstacle to Bitcoin becoming a widely used account unit — and one that is often overlooked or trivialized by Bitcoin enthusiasts — occurs due to one Bitcoin's relatively high cost compared to most common products and services.

Discussion

It is not easy to say that Bitcoin can be an accounting unit Because it is not fixed at first, so the retailer can adjust the prices of their goods a ton that is not easy to retailers and consumers. It will also be difficult to price due to the high price of small Bitcoin products because there will be plenty of decimals to make it harder for customers to read. The only way for Bitcoin to be an account product is to enter a safe state in the first place and this will happen in the future since Bitcoins are finite and they will hit a certain cap. When it hits the level bitcoin should only be used to price costly resources or services such as vehicles, so it won't have many zero-decimals in it.

Cryptocurrency as a Medium of Exchange

According to Vora (2015), the author suggests that the Bitcoin and other cryptocurrency payment method is a better alternative to other payment systems, like PayPal and the popular Mpesa network, which is normally used by most people. In another research, Many future consumers when it comes to using virtual currencies like Bitcoin favor this platform as a medium of exchange as it can be drawn and provided by its peer-to-peer, small transaction costs as well as international and separate of government-free nature from which there could be a scenario of events like buying special products. It suggests that Bitcoin users may be able to conduct one-on-one transactions with the dealer or purchaser without any interference from the financial institution or government agency, thereby making it possible to procure specific products such as illegal drugs, thereby posing a threat not only to the community but also to society as a whole. Many people who offer specific products including illegal drugs can choose and use virtual currencies like bitcoins as they are hard to trace. (Baur et al, 2018).

Another research also supports that bitcoin or the cryptocurrency can be used as a medium of exchange. The Bitcoin is a trading mechanism in the context that many companies such as Apple, Microsoft or PayPal are willing to accept bitcoins. The success of Bitcoins is focused on consumer privacy and network confidentiality (because it utilizes blockchain technology). Participants may be hesitant to engage in this new system, though, because there is no legal basis for Bitcoin; businesses choose to use Bitcoin or not; the fixed cost of implementing this software is large (sophisticated technological expertise is needed); and network externalities effects remain (If few businesses embrace Bitcoin, fewer customers will be able to accept it, which in effect means that few corporations accept Bitcoin). This 'vicious circle' is difficult to resolve since Bitcoin is not governed by any entity and there is no way of making lending on the market. Empirical studies confirm the controversial 'medium of exchange' property since users do not turn completely to bitcoin for this property (Alfieri et al., 2019). Bitcoin is somewhere between gold and fiat currency so it could act as a means of exchange. Bitcoin has many parallels between gold and currency. Medium exchange characteristics are transparent, and Bitcoin responds strongly to the federal funds rate leading to Bitcoin functioning as a currency. Bitcoin is somewhere between gold and fiat currency so it could act as a means of exchange. Bitcoin has many parallels between gold and currency. Medium exchange characteristics are transparent, and Bitcoin responds strongly to the federal funds rate leading to Bitcoin functioning as a currency. Bitcoin volume may be higher because trading is quicker and responses to market sentiment are quick. The overall result suggests that Bitcoin is somewhere between a currency and a commodity due to its decentralized nature and limited market size. However, this does not mean that Bitcoin on the market is less useful than current assets. On the opposite, this category implies that investors can get a more detailed view of the sector in portfolio management and market analysis by including cryptocurrencies, which allows them to make more informed decisions and obtain another advantage for hedging. Bitcoin can also be used as a tool for risk-averse investors in anticipation of bad news. Therefore, Bitcoin's position on the market would be on a gold-dollar scale, with one extreme being a pure store of value advantages and the other extreme being pure exchange advantages (Kubát, 2015).

On the other hand, there is research has been done by Lo and Wand (2014), that they disagree about bitcoin serves as a medium of exchange. One might try to estimate the 'fundamental' price of bitcoin––defined as its value derived from being an exchange medium––using, for instance, a quantity-for-money method. The challenge is that in such a partnership there is a significant degree of uncertainty in each input parameter. We also experimented with calculating the volume formula for a fair array of e-commerce share expectations and remittances which could potentially be intermediated by bitcoin together with the velocity of bitcoin, but still, our most optimistic forecasts of bitcoin's worth always dip far below the peak price reached in November 2013. However, the review of blockchain information by Ron and Shamir (2013) up to May 13, 2012, shows that approximately half of Bitcoin supply was not expended within at least three months of acquisition, indicating that these Bitcoins were kept more as a store of value than as an investment tool. I assume that the current high price of Bitcoin is driven equally by the positive aspirations of Bitcoin enthusiasts. Assets can be seriously overvalued when agents with widely heterogeneous beliefs face short-selling constraints, as the market price mainly reflects optimists ' value. It is practically impossible to shorten bitcoin: there is no demand for bitcoin loans or derivatives of bitcoin. Of the greatest benefit perhaps Bitcoin's backers are that transfers are secure.

This claim, however, considers that only the explicit out-of-pocket expense faced by users is required by the protocol. This ignores the fact that the algorithm, as-built, places an implied expense on any current bitcoin owner whenever a transfer query is sent to the network, thus generating a certain number of new bitcoin to reward the first miner who solves the hash function, validating the payment. This is equivalent to the creation of money that leads to inflation and therefore to the devaluation of all the existing money holdings. This is an obvious form of negative externality–the term seignories externality–through which the person initiating the transaction charges a fee not charged to the initiator to everyone. An interesting development correlated with this is that certain consumers have willingly started paying for validating their payments directly, although they are not forced to do so. After early 2009, the daily direct charge measured in dollars charged by members of the Bitcoin network.

Discussion

Writer Gautam Vora acknowledges that Bitcoin acts as a medium of exchange because it is being used by certain people and he expects that the number of people using it will increase over time. The same goes for Alfier, Enjolras, and Burlacu, they said a lot of big business would accept bitcoin. But both Vora and Alfier and others. According to bitcoin, there is no legal basis. On the other hand, Lo and Wand disagree about Bitcoin serving as an exchange medium, because he said Bitcoin has a lot of uncertainty, and since half of Bitcoin's stocks have been held for at least 3 months.

Bitcoin should be approved as a ransom for a sufficiently large collection of goods or services or other resources to act as a 'medium of exchange.' A consumer is only willing to accept fiat money as a transaction for other valuable objects if she is sure that it will be recognized by enough others. Nevertheless, unlike standard fiat money, Bitcoin is not sponsored by any sovereign entity that may compel its associated fiat money to be recognized within a certain region. Therefore, Bitcoin will rely solely on private agents ' self-fulfilling assumptions that it will be recognized as a means of exchange (Lo and Wang, 2014). But first, bitcoin needs to be legal in order to allow more people and businesses to accept it more. This result suggests that Bitcoin can combine some of the advantages in financial markets of both commodities and currencies and thus be a useful tool for portfolio management, risk analysis, and market sentiment analysis (Kubát, 2015).

Bitcoin as a Store of Value:

Gautam Vora believes that because it carries a store of value, bitcoin can be graded. Scarcity makes money and scarcity allow for a longer period for money to maintain its value. The supply of bitcoin is limited, both in theory (about BTC 21 million) and in fact (about two-thirds were mined by May 2015). Given the exchange rate swings, BTC works as a store of value. We understand the complementary features of the quality store and trade channel. The currency will increase in value (intrinsically and possibly in exchange) and stabilize as the adoption increases. It is often said that BTC's exchange rate instability militates against its role as a store of value. Again, such a claim misses the point about a feature of cash. Asset-backed cash has a stable value until it reduces asset value.

In addition, Lo and Wang (2014) agree that Bitcoin frequently acts as a price exchange and can be a platform of speculative investment. For any item whose market price is below its intrinsic value to be able to serve as a medium of exchange, it must depend on the assumption of others ' willingness to accept it to varying degrees of future transactions. Similar with commodity money, which has an intrinsic value such as gold or official fiat money guaranteed by a sovereign entity, Bitcoin's current market value to any particular consumer depends entirely on their anticipation of others ' willingness to accept it at a later relatively higher value. Transaction size is calculated using the estimated number of bitcoins sent through the Bitcoin network, although trading volume is measured by the number of exchange transactions (against fiat currencies). Miners must, in principle, verify the transactions that use Bitcoin to pay for merchandise. Similarly, because of buying bitcoin using traditional currencies via wallets, the network also processes transfers across accounts. Nonetheless, there is some 'leakage' due to internal handling of transfers by Bitcoin intermediaries such as Coinbase. We are likely to accept Bitcoin payments on behalf of merchants, convert the Bitcoin paid in dollars on an exchange such as Bitstamp, and then compensate the retailers in bitcoins. Although we were unable to determine the extent of this type of transaction storage off-blockchain, the blockchain data is likely to underestimate the volume of transactions for transfers and commercial purposes. In contrast, the company handles most of the payments that are associated with an exchange portfolio, such as buying bitcoin in standard currencies or reverse trading.

On the other hand, Dyhrberg (2016), argues that bitcoin is not a store of value. While Bitcoin is widely reported as money, it does not meet the criteria used for the definition. Legal definitions rather ignore the nature of Bitcoin and in the case of Bitcoin are explicitly mentioned in the law; this is done in connection with the ban on use. Depending on the correlation of historical fluctuations of BTC and resources such as currencies, gold and stocks, the second part revealed that storing bitcoins is more volatile than owning certain types of assets. This cancels the value-money functionality store in Bitcoin. The most creative aspect to Bitcoin remains as a part of the payment network. Nevertheless, it cannot be ignored that the services of this network are not assured and bear a certain threat. If there were another effective transaction network operated by banks or official entities in the future and if this payment network provided adequate incentives as given by the current payment mechanism, the competitive advantage of Bitcoin would be lost.

Discussion

A rise in the payment-to-trading volume ratio indicates an increase in the amount of bitcoin used for investment purposes compared to the amount used for speculative trading purposes for exchange purposes and vice versa. An increase in this ratio may, therefore, mean increased popularity of bitcoin as an investment tool, whereas a decline in this ratio could imply greater interest in bitcoin as a speculative asset (Lo and Wang, 2014). When bitcoin reaches to have gold-like functions by then it will be as a value store. Otherwise, people will be afraid of buying and selling bitcoin on a long-term basis. Bitcoin isn't steady sometimes it's going up and sometimes it's going down like any other money or a commodity like gold, but the difference is that it's got a big variance that implies it's going up a lot or down a lot.