The term cryptocurrency has been devised from the mixture of two words that are mainly cryptography and currency. It is a form of a currency that is encrypted digitally to produce economical assets (Böhme et al., 2015). The money generated in the form of cryptocurrencies is used for digital transactions that are technically secured and verified. They are the digital assets that are configured in such a way that their exchanges are cryptographically encrypted, additional units are controlled and the whole transaction process of the assets is verified before initiation (Iwamura et al., 2014). In the commercial world, they can be classified as a type of digital currencies, alternative currencies and virtual currencies.
The transactional process of the cryptocurrencies is different to that of the modern banking system. It is because the banking system is relied upon centralized electronic banking systems whereas the cryptocurrencies are relied upon a decentralized control of transfer. This decentralized control of transfer of the cryptocurrencies includes the presence of a blockchain that is a public transactional database. The blockchain facilitates the transfer of the currencies using a distributed ledger where the account of all the transactions taking place all across the world is recorded (Iansiti & Lakhani, 2017). The information about every transaction is forwarded to every active member of the blockchain so that any sort of discrepancy or falsity can be avoided. This is the reason for which the system does not require a central authority to maintain the integrity of the system. According to the protocols of the system, the system decides whether there is a possibility of introducing a new cryptocurrency unit and if there is a possibility of such, the system takes the charge of defining the origin of the cryptocurrency and how to obtain the ownership of that new origin (Ali et al., 2014). The ownership of the newly originated unit can be proved with the help of several cryptography techniques.
With the advent of the cryptocurrencies in the process of leading with the transactions, the banking industry is being disrupted due to the rise of these digital assets through several ways. The cryptocurrencies uses a decentralized control for the transactions all over the world for which it is affecting most of the real world currencies. Dollar is one of those currencies that considered as a primary source of the global economy. It has been able to mark its dominance through centralized banking in most of the countries. However, with a decentralized control, the cryptocurrencies have been able to disrupt the centralized banking process (Pilkington, 2016). As a consequence to this, the international trades, relations with the foreign entities, diplomatic strategies along with the economic sanction are largely getting impacted.
Although, it is being apprehended that due to its decentralized nature, the cryptocurrencies are going to play a huge role in the daily life by smoothening the flow of transactions, several industries such as the payment sectors, governments along with the banking industry is expected to face severe challenges in adapting to the exchange of economy of the country (Bech & Garratt, 2017). The cryptocurrency is expected to boost up the economic growth by allowing merchants to drop in with innovative business ideas and trade points.
According to Lawrence Lessig there are four regulators that regulate a particular entity. These four regulators are the law, market, architecture and the norms. The laws are set by the governments, the norms are set by the community, the market is set by the economical standards and the architecture is set by the development and the urge of innovation (Katyal, 2013). The banking industry uses a centralized system for which the information about the transactions and the monetary exchanges are kept highly secured under strict supervision. However, the decentralized transaction process of the digital currencies may lead to an infringement of the personal accounts since it is not under a strict supervision. Therefore, it is evident from the fact that there are no governmental laws for the blockchain (MacDonald, Allen & Potts, 2016). The internal laws of the decentralized system include mandatory cryptocurrency accounts, maintenance of a ledger and the right to information about all the transactions. An architectural constraint relating to the technology of the transaction process of cryptocurrencies is the inclusion of a blockchain, that is a public transactional database used for maintain the records of all the transactions taking place in a particular period of time. Transactions though a blockchain is expected to increase the efficiency of all the transactions.
Cryptocurrency intends to change the process of transactional workflow in a particular system of monetary exchanges (De Filippi, 2014). In the centralized form of the system that is in the banking system the transaction generally takes place through the involvement of several third parties or the intermediaries. In order to facilitate transaction through a centralized system it is mandatory to have accounts on both the ends that is the account of the sender and the account of the recipient. These accounts are in the safe custody of the individual banks on either of the side. To have an exchange the sender must look into his banking account for his transfer of money and with the help of a third party he should be able to send money to the account of the recipient. The third parties have restrictions at times, are slower, involves extra charges and are closed in nature (Ally, Gardiner & Lane, 2016).
However, the transactional procedure in case of a decentralized system involving the transfer of the cryptocurrencies is a bit different to that of the transaction in the centralized process (Fanning & Centers, 2016). The transaction of the cryptocurrencies takes place through the help of a blockchain and a public network. The blockchain is a public transaction database while the network is an open network. Being decentralized in nature, the transactions of the cryptocurrencies does not involve any third parties. In order to send digital currencies, a sender must have an encrypted account where the cryptocurrencies are stored and he can directly send the assets to the recipient’s account through the help of the open network (Décourt, Chohan & Perugini, (2017). This network is a peer to peer network that is much secured than the existing bank accounts and supports instant transfer unlike the centralized networks. The involvement of the blockchain in the network facilitates the transfer as it maintains the distributed ledger where all the information about the transfer is stored.
00:00 – 00:15: In the centralized form of the system [pause] that is in the banking system [pause] the transaction generally takes place through the involvement of several third parties or the intermediaries.
00:15 – 00:30: [pause] In order to facilitate transaction through a centralized system [pause] it is mandatory to have accounts on both the ends that is the account of the sender and the account of the recipient.
00:30 – 00:40: [pause] These accounts are in the safe custody of the individual banks on either of the sides that is for both the receiver and the sender.
00:40 – 00:55: [pause] To have an exchange [pause] the sender must look into his banking account for his transfer of money [pause] and with the help of a third party [pause] he should be able to send money to the account of the recipient.
00:55 – 01:05: [pause] The third parties have restrictions at times, are slower, involves extra charges and are closed in nature.
01:05 – 01:20: [pause] However, [pause] the transactional procedure in case of a decentralized system involving the transfer of the cryptocurrencies [pause] is a bit different to that of the transaction in the centralized process.
01:20 – 01:30: [pause] The transaction of the cryptocurrencies takes place through the help of a blockchain and a public network. [pause] The blockchain is a public transaction database while the network is an open network.
01:30 – 01:40: [paused] Being decentralized in nature, [pause] the transactions of the cryptocurrencies does not involve any third parties.
01:40 – 01:50: [pause] In order to send digital currencies, [pause] a sender must have an encrypted account where the cryptocurrencies are stored [pause] and he can directly send the assets to the recipient’s account through the help of the open network.
01:50 – 02:00: [pause] This network is a peer to peer network [pause] that is much secured than the existing bank accounts and supports instant transfer unlike the centralized networks.
References
Ali, R., Barrdear, J., Clews, R., & Southgate, J. (2014). Innovations in payment technologies and the emergence of digital currencies.
Ally, M., Gardiner, M., & Lane, M. (2016). The potential impact of digital currencies on the Australian economy. arXiv preprint arXiv:1606.02462.
Bech, M. L., & Garratt, R. (2017). Central bank cryptocurrencies.
Böhme, R., Christin, N., Edelman, B., & Moore, T. (2015). Bitcoin: Economics, technology, and governance. Journal of Economic Perspectives, 29(2), 213-38.
De Filippi, P. (2014). Bitcoin: a regulatory nightmare to a libertarian dream.
Décourt, R. F., Chohan, U. W., & Perugini, M. L. (2017). BITCOIN RETURNS AND THE MONDAY EFFECT. Horizontes Empresariales, 16(2).
Fanning, K., & Centers, D. P. (2016). Blockchain and its coming impact on financial services. Journal of Corporate Accounting & Finance, 27(5), 53-57.
Iansiti, M., & Lakhani, K. R. (2017). The truth about blockchain. Harvard Business Review, 95(1), 118-127.
Iwamura, M., Kitamura, Y., Matsumoto, T., & Saito, K. (2014). Can we stabilize the price of a Cryptocurrency?: Understanding the design of Bitcoin and its potential to compete with Central Bank money.
Katyal, N. (2013). Disruptive Technologies and the Law. Geo. LJ, 102, 1685.
MacDonald, T. J., Allen, D. W., & Potts, J. (2016). Blockchains and the boundaries of self-organized economies: Predictions for the future of banking. In Banking Beyond Banks and Money (pp. 279-296). Springer, Cham.
Pilkington, M. (2016). 11 Blockchain technology: principles and applications. Research handbook on digital transformations, 225.
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