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USING CRYPTO CURRENCY AND ASSOCIATED ADVANTAGES AND

DISADVANTAGES

Article · June 2018

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 International Journal of Economics & Finance Research & Applications
Vol. 2, Issue 2 - 2018
USING CRYPTO CURRENCY AND ASSOCIATED ADVANTAGES
AND DISADVANTAGES
RASHMI PRIYA SHARMA*, ARABINDA SHARMA**

ABSTRACT

Bitcoin is a crypto currency digital currency which was founded in 2008. It is a

form of currency with no physical form, created and held electronically. It can
be used to buy things electronically and in that sense it is no different than
conventional dollars. It is designed for secure financial transactions that
require no central authority, no banks and no government regulators
completely transparent and easy to set up. Despite of several advantages
bitcoin, it remains as uninvestigated financial product, chance of illegal and
questionable activity, absence of relevant theoretical background,
unregulated commodity and absence of consumer protection and also prone
to al or risks- theft, loss of key, hacking, value collapse. It has already put its
footprint in India with significant rise in recent years. It has already put its
footprint in India with significant rise in recent years. In India it has not been
regularized and has no well defined regularity framework for bitcoin. Hence,
people may use it own risk and due care till the above mentioned issues can
be resolved and the volatility related to bitcoin can be removed.

KEYWORDS: Cryptocurrency, Bitcoin, Digital Transaction, Block Chain,

Bitcoin Mining, Security Issue.

INTRODUCTION

The human civilization has witnessed different transaction of physical currency. This type of
means and medium of transactions for usage of the currency is an attempt of
exchange of services and commodities. Mostly, digitalization of physical currency. In the recent
all these are mean and medium are physical in time the complete and true digital currencies
form such as metal coin or paper currency. (i.e. no physical form) have also been
However, with the advancement of introduced time to time.
technologies, especially computer and internet,
digital mode of transaction has come into Some of those currencies which have emerged
existence. Most of financial institutions and in the recent time are Litecoin (LTC), Ethereum
(ETH), EOS (EOS), Cardano (ADA), NEO (NEO),
Government of the countries have promoted
Bitcoin (BTC), Monero (XMR), Ripple (XRP),
the online payment as a safe and quick mode of
Dash (DASH).
*
Department of Commerce, GDC Memorial College, Bahal-127028, Bhiwani, Haryana, India.
**
Civil Engineering Department, BRCM College of Engineering & Technology, Bahal-127028, Bhiwani, Haryana,
India. Correspondence E-mail Id: [email protected]

© Eureka Journals 2018. All Rights Reserved. ISSN: 2581-4249

Using Crypto Currency and Associated Advantages and Disadvantages
Rashmi PS et al. 18

The large majority of these digital currencies DECENTRALIZED

remain entirely virtual and intangible. These are
also called as cryptocurrency where the term The first and foremeost thing which is being
“crypto” refers to complicated cryptography included as feature of Bitcoin is that it is
which allows for a particular digital token to be decentralized one. It mean there is no central
generated, stored, and transacted securely and, authority (for example Reserve bank of India,)
typically, anonymously [1]. or any other financial institutions that control
its transaction network. It implies that it is not
All these digital currencies exhibit properties under the control of any agency which can play
similar to physical currencies, but allow with monetary policy i.e change the valuation
instantaneous and borderless transactions of the Bitcoin. It is rather controlled by a
among the users [2]. Bitcoin is one of these protocol maintained in a peer-to-peer system
digital currencies which was invented in 2009 by a community of people without any need for
anonymously by a group of people under the a third party. The interesting thing is that
name Satoshi Nakamoto. It is a form of digital anyone can join this community which makes it
currency (physical form is absent), created and a fully decentralized monetary system [5].
held electronically. It can be divided into
smaller unit called Satoshi (one hundred EASY TO SET UP
milionth of a BTC) [3]. Bitcoin continues to lead
Bitcoin is an open-source software-based
all the cryptocurrencies, in terms of market
payment system. Payments are recorded in a
capitalization, user base and popularity. In the
public ledger using its own unit of account,
present communication, an attempt has been
which is also called bitcoin. The simplest way to
made to through some insight in the working
put money in bitcoin is to link a bank account to
principle of Bitcoin along with its advantage and
a Coinbase account (database available at:
disadvantages so that people can able to make
https://en.bitcoin.it/wiki/Buying_bitcoins Bitcoin
their independent decision regarding the use of
can be store as online exchanges, Wallets, Paper
the crypto currency.
Wallets, Brain Wallets, Transfer money back to
FEATURES OF BITCOIN bank account, Convert to other currencies,
Hardware Wallet (Trezor) [5,6]
The working of bitcoin system is entirely unique
and different from conventional currencies in ANONYMUS AND TRANSPARENT
use across the globe. Bitcoin functioning is
Bitcoins are stored in wallet with digital
based mathematical protocol whereas the
credentials for your bitcoin holdings and allows
conventional currencies are based on reserve
you to access them. Wallet uses public-key
back up of valuable metals such as gold and
cryptography, in which two keys, one public
silver of equal amount. Moreover, unlike
and one private are generated. Public key can
conventional currencies the any transaction
be thought of as an account number or name
made in Bitcoin is recorded in a public ledger
and the private key, ownership credentials.
using its own unit of account (Bitcoin) [4].
Bitcoin is transferred to the next owner when
Bitcoin has got numerous striking features that
the next owner gives a public key and previous
distinguished it from the conventional currency
owner uses his private key to publish a record
quite easily and some of those features are
into system announcing that the ownership has
presented below:
changed to the new public key. Bitcoin protocol

© Eureka Journals 2018. All Rights Reserved. ISSN: 2581-4249

 International Journal of Economics & Finance Research & Applications
19 Vol. 2, Issue 2 - 2018

stores details of every single transaction that untill the total amount of bitcoins reaches 21
occurred in the network in huge version of millions.
general ledger (Block chain) .
As of the today, the reward received by miner
NEGLIGIBLE FEES AND IRREVERSIBLE for completing a block is 12.5 Bitcoin which was
PROCESS 50 in the year 2009 when bitcoin was mined for
the first time. The number of bitcoin creation
Althoguh bitcoin is not the first difitally based and allocation decrease by half every four
cryto currency but what makes it unique is its years, as per the bitcoin protocol. It means in
operation and offer it place from user point of another two years (i.e. in the year 2020), the
view. Bitcoin is a currency run using miners will get 6.25 bitcoins for each block they
mathematical protocol on the internet mine or added to the chain. Thus, all the 21
platform. But the beautiful thing with bitcoin, million bitcoins will be distributed by 2140. It
either national or international, doesn’t involve indicates that in the year 2140 the reward will
any chrages from its users. Thus it is the first plunge to zero [7, 8].
private crypto currency which is based on
decentralized peer to peer network avoiding MONEY CIRCULATION
double spending by verifying each transaction
• The total amount of bitcoin in circulation is
added to its chain for uniqueness in the inputs.
governed as below:
It enable to ensure the system that input for
• MxV=PxQ
the transaction had not been previously used
[4,5,6]. It is important since digital currency can • Where, M-total amount of money in
be otherwise copied and used in several circulation; V-velocity of money; P-price
transactions. level; Q-indeks of real value of final
expenditures
WORKING PRINCIPLES OF BITCOIN • Bitcoin as currency increases amount of
money and hence leads to increasing price
The working principle of Bitcoin can be levels (V and Q constant). Since bitcoin is
dsicussed under following sub-headings: inherently deflationary it will benefit in a
way that its usage will cause value decline
ALLOCATION OF BITCOIN
of other currencies while bitcoin will
Bitcoins being a digital and virtual currency experience rise [6].
which do not exist in physical form, it allocation
BITCOIN MINING
is not as simple and straightforward. It is simple
record on public ledger crypted using a complex It is a procedure that helps the bitcoin function
mathematical problem. as planned and also a mechanism to
continuously introducing new Bitcoins till the
The new bitcoins are generated as a reward for
limit of 21 million coins would have reached by
a process known as mining which involves
2140. Bitcoin mining is performed by high-
solving complex mathmetical problems using
speed computers that can solve complex
special software by the miners. Miners are
computational math problems. Bitcoin mining is
rewarded with certain amount bitcoin for each
a lot like a giant lottery where anyone can
time they discover new block in the block chain
participate and compete with mining hardware
without puting money for it. The bitcoin
with everyone on the network to earn bitcoins.
software generally go on creeating new one

© Eureka Journals 2018. All Rights Reserved. ISSN: 2581-4249

Using Crypto Currency and Associated Advantages and Disadvantages
Rashmi PS et al. 20

The result of bitcoin mining is twofold. When • No central agency to monitor validity of
computers solve the complex math problem on transaction and framed policy to ensure
the bitcoin network, they produce new bitcoin, safety/guarantee of the bitcoin.
and by solving computational math problems, • Security Issues: Some security related
bitcoin miners make the bitcoin transaction questions arise with Bitcoin uses [12]. The
network on a public ledger trustworthy, secure check of authentication of payment to the
and accurate [9]. Thus the bitcoin mining serves right person is big challenge. Some other
the purpose of central authority as in case impersonator may get involved in it if not
conventional currencies. properly verified. The integrity of bitcoin is
also in doubt very often. There is always
Bitcoin miners achieve the desired
some chance of being double-spent of the
authentication in the absence of central
coin or an attacker can reverse or change
institutions by clumping transactions together
transactions. The availability of bitcoin as
in “blocks” and adding them to a public record
per users requirement. Since the
which is referred as “block chain.” When bitcoin
transactions are recorded on an open
miners add a new block of transactions to the
ledger, it also lowers then confidence
block chain they make sure that bitcoin are not
among the users regarding transactions
being duplicated and for adding one block to
privacy and anonymity.
the chain, miners are currently awarded with
• Legality is an important issue, as many of
12.5 newly created bitcoins in contrast to 50
the countries have not legalized the use of
bitcoins when first bitcoin mining took place in
Bitcoin. It poses challenge to free
2009.
transaction of f bitcoin among all the
BITCOIN: CHALLENGES countries.

Bitcoin has been plagued with several ADVANTAGE AND DISADVANTAGE

challenges too [10]. Some of those are
The advantage and disadvantages related to
summarized below:
use of bitcoin are summarized below:
• Creation of a virtual coin/note: The creation
ADVANTAGES
and authenticity of bitcoin is not ensured.
Moreover, how to restrict someone from • It is easy to set up and it is fast.
producing more coins leading to inflation is • Low and irreversible transaction fees
also in vague [11]. • Thre is central authority or any financial
• Validation of coin and transaction: It is institution to leive charge (possible
required to check if the coin is legitimate to disadvantage)
use. How to check if a coin is free from • It is more better form of digitalization of
double-spending or not copied. Ensuring financial transaction as compared to online
buyer and Seller protection during online transfer though banks, credit card, ATM etc.
transactions if both the party received their • It can be used in all countries across the
respective dues and there would not be any globe.
undue claim from either side. For
transaction many third party software are DISADVANTAGES
being used and hence trust on third-parties
is important. Since the transaction is noted • Illegal activities, speculations and nature of
on open ledger, it is verifiable by everyone. this currency-Anonymity and relevant

© Eureka Journals 2018. All Rights Reserved. ISSN: 2581-4249

 International Journal of Economics & Finance Research & Applications
21 Vol. 2, Issue 2 - 2018

theoretical base as a digital currency is first instance bitcoin seems to be promising

blurred. alternative as a digital currency that can be
• Uninvestigated financial product-Regulation across the globe without third part (central
and taxation issues are not clear authority) interference. However, there is no
• Undefined legal status-Full of illegal and well defined regularity framework. Several
questionable activity, disputable status of security issues are associated with it and in
independent and decentralized currency. many countries have kept it as illegal. It has
Illegal or undefined in most countries of the already put its footprint in India with significant
world [13]. rise in recent years. In India it has not been
• Highly volatile value and an unknown issuer regularized and has no well defined regularity
• Skepticism towards implementation of framework for bitcoin.
new, unregulated, theologies in finance
Hence, people may use it own risk and due care
sphere.
till the above mentioned issues can be resolved
• Unregulated commodity and absence of
and the volatility related to bitcoin can be
consumer protection
removed. Finally, it is expect that the article will
• Risks- theft, loss of key, hacking, value
help people to make their independent decision
collapse
regarding the use of crypto currency.
• Mining problems-algorithm behind issue
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