The rise of cryptocurrency has introduced substantial shifts in the financial sector, posing challenges to conventional financial systems and offering new models for monetary transactions. This study examines the influence of cryptocurrency on traditional financial structures, emphasizing its disruptive capabilities, regulatory hurdles, and future outlook.
Cryptocurrency refers to a form of digital or virtual currency secured by cryptography. Unlike conventional currencies issued by governments and central banks, cryptocurrencies function on decentralized networks powered by blockchain technology. Due to this decentralization, no single authority controls them, which enhances their resistance to censorship and fraud [1, с. 2]. he most well-known cryptocurrency is Bitcoin, introduced in 2009 by an anonymous entity known as Satoshi Nakamoto. Other well-known cryptocurrencies include Ethereum, Ripple, and Litecoin.
Cryptocurrencies have transitioned from niche digital assets to a major global financial phenomenon. Since the launch of Bitcoin in 2009, the market has grown significantly, with thousands of cryptocurrencies now in circulation and a total market capitalization reaching trillions of dollars. This rapid growth has raised critical questions about their impact on the global economy, particularly in international trade, financial stability, and regulation.
Cryptocurrencies introduce a range of new risks and challenges. Their high volatility can result in significant financial losses, while the lack of regulation makes them vulnerable to illicit activities such as money laundering and tax evasion. Additionally, the increasing popularity of cryptocurrencies raises concerns about the future role of fiat currencies and central banks in the global economy [2, с. 89].
In the realm of international trade, cryptocurrencies have the potential to streamline transactions, reduce reliance on intermediaries, and improve efficiency while lowering costs. This could significantly impact global supply chains and international business operations [3, с. 101]. However, the widespread adoption of cryptocurrencies must overcome various regulatory and legal obstacles, as different countries have diverse approaches to governing digital currencies.
Cryptocurrencies can be classified as private money or community currency. In most countries, their use for payments is legal, with no laws explicitly prohibiting cryptocurrency transactions [4, с. 2]. However, cryptocurrencies are not recognized as legal tender and do not fit the definition of electronic money. Unlike virtual currencies, which have issuers, cryptocurrencies lack a central issuer. Despite this, the term "virtual currency" is often used interchangeably with cryptocurrencies like Bitcoin, though distinctions are sometimes made between centralized and decentralized forms.
Cryptocurrencies present significant legal challenges and expose users to substantial legal risks. The primary challenge lies in determining their legal classification, as they intersect with civil, administrative, and criminal law. It remains essential to establish whether cryptocurrencies should be uniformly regulated across these domains, with particular complexities arising in areas like tax and criminal law.
A defining feature of cryptocurrencies is the blockchain, a decentralized ledger of transactions. In systems like Bitcoin, legal tender is absent; instead, users' wallets contain data linked to confirmed blockchain transactions. Transactions do not directly move between wallets but are recorded as changes in the blockchain’s entries.
Therefore, individual cryptocurrencies (e.g., Bitcoin or Litecoin) are simply ledger entries on the blockchain. These entries represent subjective value and can be seen as abstract units of value, similar to currency units. In civil law, cryptocurrencies can be viewed as a "measure of value other than money" unless explicitly agreed upon by parties in a contract [5, с. 1132]. Furthermore, cryptocurrencies may be regarded as property rights or a form of property, given their representation as ledger entries on the blockchain. Issues like cryptocurrency lending remain contentious, and consumer protection is a key concern given the operational practices of businesses in this ecosystem.
The question arises as to whether cryptocurrencies should be subject to legal regulations governing payment services. Unlike traditional payment systems with defined responsibilities between users and providers, cryptocurrency transactions lack such clarity due to the absence of a central authority. As a result, the PSD Directive does not apply to cryptocurrency transactions, placing them outside its scope.
The blockchain system shares certain similarities with payment or bank accounts used for transactions, reflecting the ideological foundation of cryptocurrencies as alternatives to traditional banking systems. While the primary aim of cryptocurrencies is to enable payments for goods and services, the blockchain also functions as a store of value, akin to a depositary system. This feature challenges traditional notions of deposit-taking, a regulated banking activity. Entities that do not meet legal requirements for deposit-taking may face criminal penalties.
So, the rise of cryptocurrencies has significantly impacted the global financial system, offering both opportunities and challenges. Cryptocurrencies enhance cross-border transactions, making them faster, more efficient, and cost-effective, which could transform global trade and increase financial inclusion. However, their volatility and lack of regulation pose risks, including financial instability and potential for illegal activities like money laundering and tax evasion.
The decentralized nature of cryptocurrencies challenges traditional financial systems, particularly the role of central banks and monetary policy. As cryptocurrencies grow in popularity, especially in countries with unstable currencies, they may undermine the authority of central banks and impact the future of fiat currencies.
Regulatory frameworks are still fragmented globally, making it difficult to manage the risks associated with cryptocurrencies. International cooperation will be key to establishing consistent regulations that protect users and ensure financial stability while fostering innovation.
In conclusion, cryptocurrencies have the potential to reshape the financial landscape, but addressing their risks through effective regulation and cooperation will be critical for their sustainable growth.
List of references:
1. Nakamoto, S. Bitcoin: A Peer-to-Peer Electronic Cash System. URL: https://bitcoin.org/bitcoin.pdf
2. European Central Bank. Virtual Currency Schemes – a Further Analysis. – Frankfurt: ECB, 2015. – 50 с.
3. Casey, M. J., & Vigna, P. The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order. – New York: St. Martin's Press, 2015. – 368 с.
4. Regulation of Bitcoin in Selected Jurisdictions, January 2014, published on http://www.loc.gov/law/help/bitcoin-survey/regulation-of-bitcoin.pdf
5. K. Zacharzewski, Bitcoin as a matter of private law relations, Law Monitor 2014, No. 21, p. 1132.
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