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Title

“An exploration of the key issues surrounding the acceptance of Cryptocurrency in UK”

Introduction

Overview:

This research establishes to explore the degree of acceptance and its related issues in the UK. With the advent of technology, recent years have observed disruptive innovations in wide variety of sectors such as Hospitality, Logistics as well as Data Analytics. It is interesting to note that, in present-day-scenario, only 8 percent of the world's money comprises physical notes while majority of the transactions are constituent of digital sources such as credit or debit cards and payment apps among others. One such concept relates to Cryptocurrency. Since time immemorial, every era or dynasty minted their own coins for the purpose of conducting financial transactions in a manner which could be easily measured. In recent years, virtual currency has gained immense prominence and stirred up controversy all around the world. One can define this virtual currency as a digital asset which is developed to facilitate the exchange of commodities in return for definite units of cryptocurrencies. One of its main feature is that it is decentralised in nature. Thus, it is not backed by a central bank or federal authority who has the power to determine the manner in which it would be circulated within a particular economy. This is a crucial piece of information since the world's cash reserves are valued on the basis of Gold Standards.

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Background:

Crypto-currency is a digital asset that follows the rules of cryptography so as to conduct financial transactions in a secured and highly controlled environment. It includes utilisation of encryption techniques which help in regulation in terms of units generated and funds transferred from one point to another. One of the key features of this concept is that they are difficult to counterfeit. With no central authority to regulate its circulation, Cryptocurrency has proven to be a highly decentralised medium of exchange for its users. These decentralised systems are mainly based on a technology known as 'Block-chain' which acts as a ledger for all the transactions that are engaged into by using this currency.

Blockchain can be defined as a technology that includes a chain of blocks. These blocks are a digital piece of information which detail the date, time and amount regarding the last transaction that a user engaged in using cryptocurrency. Thus, place of transaction as well as one's digital signature is recorded through this technology. It is important to note that each block contains a unique code known as 'hash' which enables one to distinguish between two or more blocks.

In the present day scenario, there are many countries where crypto-currency has been accepted and recognised as a valid source from transactional perspective. In the context of UK, there is no specific regulation governing crypto-currency trades. However, the government has not awarded this asset the status of valid currency although HMRC has added certain clauses regarding the tax treatment of such virtual assets, specifically relating to the Capital Gains Taxes.

Research Aim:

“To explore the key issues surrounding the acceptance of crypto currency in UK”

Objectives

  • To understand the Concept of Crypto-currency and Block-chain.
  • To ascertain main differences between Crypto-currency and existing Banking and Regulations in UK.
  • To explore key issues related to the acceptance of Crypto-currency in UK.
  • To ascertain suitable ways to overcome issues related to Crypto-currency's acceptance in UK.

Research Questions:

  • What do the concepts of Crypto-currency and Block-chain entail?
  • What are the main differences between Crypto-currency and existing Banking and Regulations in UK?
  • Why Crypto-currency is not widely accepted in UK?
  • In what ways can issues related to Crypto-currency's acceptance in UK be resolved?

Literature Review

According to Swan (2015), the concept of Blockchain is considered as the 'Internet of Individuals'. With an ever growing increasing demand of innovative solutions to trivial problems, the 'Internet of Things' has become a widespread phenomenon which is expected to expand to 26 billion devices and $1.9 trillion economy by 2020. In order to meet these needs, a corresponding currency is required to be formulated which is considered to enable its users to manage their financial transactions in a secured and efficient manner. This concept is known as 'Internet of Money' which is essentially related to the concept of 'Crypto-currency'. As Birch (2015) observes that introduction of this digital asset would provide a transition from universal credit to a more value and community based world of currencies.

Iwamura and et.al (2014) assert that there are many differences between the Crypto-currency and Banking Systems when it comes to their mechanisms. One of the main demarcation between the two is that one is centralised while the other is decentralised. Whereas another important distinguishing feature is the level of volatility recorded among the two. While exisiting currencies, known as 'fiat money', are heavily controlled by Central Government, the digital asset is not governed by any such authority. Thus, it records more volatility in comparison to exisiting currencies. As a result, it can be said that due to its instability, acceptance of such a medium of exchange is quite controversial.

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Choo (2015) states that due to no legal authority governing the mechanisms of Crypto-currency, it is more prone to illicit activities such as corruption, money laundering/ terrorism financing risks. This is possible due to the fact that there is no evidence of transaction once the blockchain is updated, thus, making it difficult for the government to ascertain accurately the source of such activities.

Danezis nd Meiklejohn (2015) asserts that introduction of centrally managed crypto-currency can help in eliminating the limitations of such assets and enable the public to enjoy al the benefits that such mediums have to offer in a sustainable manner. Under this framework, the central government would retain complete control over its supply in the economy and rely on different set of authorities to keep a check on double-spending problem. As a result, wasteful hashing would be eliminated along with scalable systems which result in causing the double spending issue from the get go.

References

  • Swan, M., 2015.Blockchain: Blueprint for a new economy. " O'Reilly Media, Inc.".
  • Birch, D.G., 2015. What Does Cryptocurrency Mean for the New Economy?. Inhandbook of digital currency(pp. 505-517). Academic Press.
  • Iwamura, M. and et.al, 2014. Can we stabilize the price of a Cryptocurrency?: Understanding the design of Bitcoin and its potential to compete with Central Bank money.Understanding the Design of Bitcoin and Its Potential to Compete with Central Bank Money (October 25, 2014).
  • Choo, K.K.R., 2015. Cryptocurrency and virtual currency: Corruption and money laundering/terrorism financing risks?. InHandbook of digital currency(pp. 283-307). Academic Press.
  • Danezis, G. and Meiklejohn, S., 2015. Centrally banked cryptocurrencies.arXiv preprint arXiv:1505.06895.
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