2018 International Conference on Information and Communication Technology for the Muslim World

Cryptocurrency vs Fiat Currency: Architecture,

Algorithm, Cashflow & Ledger Technology on
Emerging Economy
Subtitle: The Influential facts of Cryptocurrency and Fiat Currency

Mohammad Rabiul Islam 1st Prof Dr. Imad Fakhri Al-Shaikhli 2nd
Department of Computer Science Department of Computer Science
International Islamic University Malaysia International Islamic University Malaysia
Kuala Lumpur, Malaysia Kuala Lumpur, Malaysia
Email: [email protected] Email: [email protected]

Dr Rizal Mohd Nor 3rd Kabir Sardar Mohammad 4th

Department of Computer Science Department of Economics and Management Science
International Islamic University Malaysia International Islamic University Malaysia
Kuala Lumpur, Malaysia Kuala Lumpur, Malaysia
Email: [email protected] Email: [email protected]

Abstract— Typically, electronic currency like digital or correctness of each transaction ‘blocks’ of data which is
cryptocurrency both are influencing the world economy under the authenticated cryptographically. The Main objective of this
ledger technology, where as traditional fiat currency plays vital role paper is to try to figure out the contemporary scenario from fiat
in socio economy followed by conventional printing method. This currencies that expand on cryptocurrency, in terms of its
review paper is basically focused on most influential facts behind performance of P2P network transaction through its pros and
the economical elements like the applicable operation via successful
cons.
blockchain algorithm, architecture and mining operation based on
contents from journal publications, online publications, news II. LITERATURE REVIEW
reports, seminars and workshops. Several aspects of crypto and fiat
currencies are rolling on emerging economy, from this point, this The backbone of Cryptocurrency is blockchain
paper tries to figure out how consensus algorithm and growing technology that is a distributed, autonomous, open-source
numbers of crypto and fiat currencies are performed with its software application and function which operates in peer-to-
existing pros and cons towards further developing process. peer networks as a private irreversible payment gateway.
Digital medium of exchange is used by cryptography to secure
Keywords— Crypto Currency; Fiat Currency Cashflow;
transactions and control the creation of additional units that
Algorithm; Emerging Economy.
verify transfer of assets which allows cross-border payments
with little or no transactional costs [4]. Cryptocurrencies have
I. INTRODUCTION ceased the attention globally with the direct competitor of
Currency types of payment form was made as early as conventional fiat currency by collective market capitalization
2200 BC [1]. In the era of information age, it’s just being [5]. The regulations of cryptocurrency by Central Banks are
converted and known as cryptocurrency that began to be still on the go in many countries. Some research suggest
processed by blockchain technology [1]. In last few years Digital Gold Currency (DGC) which is active on e-commerce
millions of dollars were invested in bitcoin and other for online trades [6].
cryptocurrencies in terms of mining and gaining profits, but Currently, there are hundreds of cryptocurrencies in
still recent success has not been reached yet due to low levels the market and most successful one is Bitcoin which is used as
of critical conditions as well as market competency. Recently, currency on its own. Compared to fiat currency, Bitcoin is a
the world socio economic is extended on to digital currency better alternative [7]. Since 1973, the paper cash issued holds
known as cryptocurrency which is based on cryptography and no real value as it is sponsored by trusted general population of
is followed by decentralized processing system as the their administration capacity to control its course to
performance of its transaction [2]. The main transaction path of accomplish monetary dependability, making the money
cryptocurrency is performed by blockchain technology in devaluate [8]. Until this day, fiat cash ended up being a store of
which the characteristics of security, stability, efficie ncy and significant worth which is one of the essential elements of
non-modifiability are maintained by consensus algorithm [3]. cash. The main problem of fiat cash began rising especially
Basically, the idea of security is brought through hash after the end of Bretton Woods Contract which used to hold
functions that most crypto currencies follow due to the the United States money to the cost of Gold. The impact of the

978-1-5386-7525-0/18/$31.00 ©2018 IEEE 69

DOI 10.1109/ICT4M.2018.00022
fiat cash is on the economy and the budgetary framework the development of cryptocurrencies brought questions
prompting uncontrolled swelling and money related regarding its practicality in the long term [22]. Digital
emergencies around the globe. currencies emerged as an answer at the nightfall of the money
related emergency to give a contrasting option to the exemplary
III. THE ARCHITECTURAL MODEL OF CRYPTOCURRENCY AND monetary framework. Like any other money utilized for
DIGITAL CURRENCY exchange, Crypto currencies brings up many issues concerning
Cryptocurrencies produced by a piece of software that runs its dependability and the failure risks of image with few
on users’ computers and communicates over each other via dangers, for example, the creation of fake cash or imitation are
internet like a hand shaking or having the copies of code that is normal to all monetary standards, yet others in particular are
usually updated in terms of transaction every few minutes. If computerized or cryptographic forms of money like interruption
anyone's transaction history differs from others, then it is in the mining procedure and most importantly hacking.
measured to be incorrect and it is replaced with a copy of the
correct transaction record. If anyone challenges to damage the IV. FINANCIAL EXPLOITS
system then one would need to control more than half of the Other than fiat currency, all methods and frameworks are
entire network as exactly performed by majority on network
evolved by cryptocurrencies which made financial sector into
[5]. Encrypted cryptocurrency transaction is not new and
decades ago it was started to use in e-commerce purpose. But, new heights, called FinTech. “FinTech” or “Financial
there is a distinction between cryptocurrency and other digital technology” involves the aim and freedom of financial
currency. E.g. Credit card is performed by trail transactions products and services through technology. It impacts banks,
from source to its destination parties, but there is no trail on financial institutions, customers, regulators and businesses in
cryptocurrency transactions and it’s designed to be unidentified different industries. Recently, “FinTech” companies are
and untraceable. competing with banks in financial sectors to sell financial
products and services to customers. Banks are struggling to
Money transaction through bank align with “FinTech” start-ups in terms of using software and
( Third part banking sector ) modern technology due to regulatory reasons and their internal
User User processes. FinTech has the benefit of bringing down cost and
A Centralized management by financial B being an empowering influence for new and gainful plans of
bank
action. FinTech’s have acknowledged early that budgetary
implementation of different types, including cash exchange,
loaning, contributing and instalments, all need to consistently
incorporate in the lives of the well-educated and advanced
clients of today to remain pertinent of the current reality where
Blockchain in (Ledger Networks) business and private lives turn out to be progressively
digitalized. Blockchain has known to bring down business
Ledger costs, yet more critically, it can possibly change the way
business is directed. It offers ascend to new administration
Ledger Ledger structure and how administration is being executed. It
User User
A B empowers openness in computerized plans of action and may
Ledger
create supportable new income streams. Innovative computer
technologies are testing the basics of the exceptionally
Decentralized ledger management managed financial area, prompting the rise of non-
By users (network nodes) conventional instalment frameworks, shared cash trades and
expanded turbulence in cryptocurrency markets [24]. Research
found the most successful Cryptocurrency is Bitcoin, but its
Figure 1: Procedure of Cryptocurrency transaction. [23] limitation is not out of bound beside of its advantages that is
highlighted below.
Figure-1 shows the comparison of transaction processes
between traditional fiat currency and cryptocurrency. Fiat A. Advantages of Bitcoin:
currencies (banknotes or coins) are usually government-issued Advantages of Bitcoin is not limited by technological
in any country, currencies that are circulated by medium of approach, but also commercial application enhanced on it as
exchange. Comparing the cryptocurrency, encryption pointing below.
techniques are used to generate the units of currency which is
virtual, with no physical evidence. There are more than 1500 x Politically-free money
various types of cryptocurrencies in the market as of January
2018 according to the website (coinmarketcap) but in which x Cannot be created at free-will like present fiat money
most of them are variations on the Bitcoin architecture [25].
Rapid growth of cryptocurrencies began to be acknowledged as x No obvious link – in between fiat and real money
a means of payment gateway by major online retailers and x Cannot be counterfeited
backed by a government did not last long. Due to this reason

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 x Very safe; ownership records and past transactions are character of a client is uncovered when they set up a virtual
securely stored and protected through Cryptography wallet [10]. Additionally, a square parser was utilized to break
down the Bitcoin customer synchronization and uncover data
x Cannot be stolen or frozen by anyone
on the conduct of a Bitcoin hub when it joins the system and
x Highly transparent that it collapses uncertainty among synchronizes to the most recent Blockchain. These
non-trusting agents examinations and perceptions were then used to outline a proof
of idea and useful high-level machine engineering for seeking,
x Can transact fast and efficient to any part of the world in
ordering and dissecting freely accessible information spilling
seconds
out of the Blockchain and other enormous information sources
x Very low transaction cost, international money hence to decide whether Bitcoin exchanges could be identified by
eliminates Forex cost and Forex risk breaking down the Bitcoin Blockchain and transactions
directed through the Blockchain [11].
x Unlike fiat money, it is deflationary.
Diagram investigation and the utilization of present
day online networking innovation were also inspected to
B. Disadvantages of Bitcoin
decide how they could help uncover the character of Bitcoin
Disadvantages of Bitcoin consider towards solutions due clients. An audit of machine learning procedures and heuristics
to new technology, but its side effects bring along economical was conducted to figure out how certain practices from the
approach that is briefly described below. Bitcoin system could be increased with web-based social
networking innovation and other information to recognize
x Impossible to track Bitcoin transactions which triggers illegal transactions [11]. Irwin and Milad examined
money laundering, terrorism financing, trading drugs publications, blogs and sites published and administered by
and illicit products. terrorists’ groups and their supporters to identify the reasons
x If private key is lost, all Bitcoin is lost forever. behind leveraging cryptocurrency payment and value transfer
systems to help in funding, planning and execution of terrorist
x It’s not real money, hence risk is always there. activities. Press releases and other publications are also
checked to find if cryptocurrencies have been used by these
Some threats as posed by cryptocurrency payment technology terrorist groups in fund raising, fund transfer or recent terrorist
and value transfer system to aid in the process of funding, attacks. Using a document published by ISIS, this indicates
planning and executing acts of terror has been investigated detailed information on how the terrorists get to Middle East
[11]. Angela S.M. Irwin and George Milad are two researchers regions without being detected. A set of models were formed
of Centre of Policing, Intelligence and Counter Terrorism unit by Irwin and Milad. Their model shows how this could be
from Macquarie University, Sydney, Australia. They have achieved using cryptocurrency, especially Bitcoins. Red flag
shown strong evidence that terrorist groups and their indicators and suspicious behavior models have been
supporters are being connected to a number of terror attacks in developed to find if they can be identified earlier using
Europe and Indonesia. Some websites work with terrorist Blockchain technology. Federal and state department
organizations who collect donations in Bitcoins. There are regulatory bodies have started to focus on Bitcoin in United
countries having Bitcoin ATMs and Bitcoin exchanges in the States. They developed a regulatory framework for Bitcoin and
Middle East who are the pinhole of terrorist attacks. other Cryptocurrencies as well. Instead of blocking, they
Cryptocurrencies are being used in money laundering. Jeffrey distinguish the long-term value of virtual Cryptocurrencies and
Simser, a government official of Ontario, Toronto, Canada are trying to create a regulatory management to promote
explored Bitcoins as a growing threat for anti-money mining, development, growth and an atmosphere where
laundering regulators. Based on personal interest, Simser institutional and retail investors are protected [18].
examined case studies and reports by regulators to find Bitcoin
VI. HOW CRYPTO CURRENCY ALGORITHM INFLUENCE OF
appears to have obtained purchase and as such poses unique
ECONOMY ?
challenges to regulators unlike other virtual currencies (Simser,
2015). To identify the potential vulnerabilities to money Security is always an issue in every economy sector.
laundering and financing of terrorism through Bitcoins have Many security software companies have made more secure
been explored by Dostov and Shust [9]. They found that options for the maximum satisfaction of customers. In such
uniqueness of the Bitcoins is unlikely to make them popular case, Cryptocurrency transaction security architecture payment
among the customers, as demand for secrecy seems to be network is used by hash algorithm that shares common ledger
overrated. in blockchain technology. Moreover, cash flow unknown
problems can also be protected from the systematic inherited
V. REMEDIAL OF MISCONDUCT BY CRYPTOCURRENCY that is applied by blockchain algorithm [12]. Blockchain can
Researchers spent quality time to find the remedy of be applicable on other financial fields such as asset
misconduct by cryptocurrency and still they are searching for securitizations, intellectual property protection, asset
more suitable findings. Computer software programs, like registration and many more [13]. Some impacts are given
Packet Sniffer and Wireshark were used to see whether the below based on influence of emerging economy.

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 a) Negative Impact: VIII.HOW DIGITAL CURRENCY INFLUENCING ON EMERGING
Major negative impact produced by Cryptocurrency ECONOMY ?
makes hidden assets or transfer funds to an offshore Virtual and real two economics are driven through the
destination without informing the central bank. This impact of power of company for its successful operation [16]. Both are
the transaction effects the countries major economic sectors. individual but are running for emerging economy and digital
Moreover, the world emerging economy being impact by currency which will be able to solve problems in absence of
fraud, tax evasion and theft because the digital currency is physical currency [12]. In contemporary, virtual top few
converted from traditional fiat money. This change makes Cryptocurrencies are over the blockchain influence on socio
transaction faster, but the negative impact of currency value economy where the emerging economy is marked up.
makes the country challenge for future economy. However, enormous impact of conventional database has low
a) Positive Impact: performance but blockchain performs through its own
Several positive impacts are followed from around the functionalities. Emerging world economic linked to most
world. E.g. Financial world leading institutions is in advance to technology sectors not just the digital currency where
explore landing blockchain application [13]. Citibank technology is embodied in smart contacts for tracking
exploring with the blockchain, Australian Stock Exchange as property, energy market credits, health care supports, academic
believed in its acceleration, simplify as well as security trading transcripts and so on [17]. A decade ago, global financial
speed by enhancing of conventional ledger technology [14]. instruments were crashed due to strong technological approach
e.g. swaps credit-default but recent study proved switching to
VII. THE IMPACT OF BLOCKCHAIN SECURITY MECHANISM blockchain system makes a strong impact for security
categorization systems in 2018 [17].
Blockchain technology have consensus mechanism which
The only difference which makes this technology
play crucial role for the reliability and data accuracy that given
the most priority for the secure transaction. Calculation exceptional is by mining through the network with hash
dependence via consensus mechanism to enable with proof of functions. Numbers of miners beyond this technology uses
work (POW) but it faced 51% attacked problem [13]. This enormous computing power that turns credit for them instead
problem led in NAS (Nothing at stake) [15]. In addition, public of investing on cryptocurrency. The distributed market capital
blockchain can also accessible from any place in terms of investing over the number of growing cryptocurrency is
contributions and rewards. Due to this action, different turning to make fiat currency which is being reported as the
consensus algorithms like PoS, PoW & DPoS are used for number of growing interest rate that is done through minted
public blockchain without trusted relationship which may cause computing power and its transactions is via network, e.g.
general impact of strong security [3]. Just because of Suitable Mongolian environment makes millions through its
blockchain that stored over six thousand network nodes created transactions operations [17].
since 2009 to ensure strong stability of Bitcoin network [12]. The future of blockchain technology is about to take
Performance and the number of consensus algorithms pros and over the world just because of solution and not because of
cons are pointed out below in table-1. availability of conventional technology offered. In a word,
socio economic is emerged on the number of growing
TABLE I. PROS AND CONS OF CONSENSUS ALGORITHM innovation technology. In such case, digital economic accepts
the challenge within taking approach by increasing number of
Cons and Pros of Currency Mechanism developers, scientists and IT specialists growing all around the
N
Consensus world. But some cases like bitcoin future halving of some
o Pros Cons
Algorithms
POW based consensus is cryptocurrency new miners reward will become narrow of their
vulnerable to 51% profit of range. Otherwise, new miners can gain profit if the
Proof of Easy to verify scheme
1 Work and protects blockchain
attacks, in which opportunities continuous through existing market [26].
adversary has control
(POW) integrity.
over 51% of the mining IX. PERFORMANCE AND COMPARISON
power in the network.
POS looks more like From the above discussion, the mechanism of crypto
Proof of
POS is more energy
voting and there’s no currency is conceptualized and summarized into table-2 in
2 State physical protection from terms of its performance and comparison. The evaluation of
efficient to use.
(POS) voting fraud
implementation. disadvantages and advantages are compared to each other
BFT defines a system Practical byzantine fault based on the contemporary efficiency as the consequences of
Byzantine
3 fault tolerant
that tolerates the class of tolerance (PBFT) is a long and short term utilizable effect. However, this different
failures which belongs to replication algorithm to make the cryptocurrency and fiat currency within the triggered
(BFT)
BFT general’s problem. tolerate byzantine faults.
technological approached in where researchers follow up from
Federated FBA is suitable for
It’s set by central their conceptual approached for new innovations that boost up
byzantine consensus of efficiency,
4 authority or closed
agreement flexibility and standard of the performance of proficiency and transaction.
negotiation.
(FBA) Cryptographic security.

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