Cryptocurrency market status and utilization of Blockchain

The interest and significance for cryptocurrency is hot around the world. Because the currency is traded in a virtual space, the present value fluctuation width is attracting attention as a speculative asset, as there were opinions about whether it is possible to substitute real money. Cryptocurrency is based on the Blockchain technology of the distributed transaction ledger system, which is excellent in security and anonymity of the transaction is guaranteed to some extent, as an attractive alternative currency. However, there is a strong sense of value instability and anonymity, which can be the point of limitation.

There are a lot of skepticism about the fact that the construction of the real transaction system of the cryptocurrency, such as the Bitcoin, is not enough to perform perfectly as of currency. However, the Blockchain technology as the basis is applied to various fields.

| Cryptocurrency Market |

Public interest in cryptocurrency is hotter than ever. According to a cryptocurrency statistics site Coinmarketcap, the world cryptocurrency market cap skyrocketed almost 9 times from “$18.4377 billion dollars (20.19175 trillion won)” in the beginning of 2017 to$170 billion (180.55 trillion Won) as of November 17. At the center of the surging cryptocurrency market is the Bitcoin and Ethereum, which trades up to 70% of the cryptocurrency market, and over 1,100 cryptocurrency, including Ripple, Light Coin, and Dash. Cryptocurrency, based on the Blockchain technology, has the advantages of consisting high security and low fee, but is treated as only a speculative asset in Korea. Despite concerns over social side effects, it is necessary to reexamine the business value of Blockchain in view of its synergistic effect in combination with various business fields, as speculative demand for cryptocurrency increases. There is a need to rethink the value. This report examines the current status and various applications of cryptocurrency.

| Technology and functions |

1. Blockchain

Bitcoin is a representative example of the use of Blockchain technology. This technique, also known as a “distributed public transaction ledger,” is implemented in such ways that blocks with transaction details are linked together as a chain and sent to all users on the network. As of P2P network-based trading system, Blockchain technology solved the biggest problem of existing P2P transactions in that the transaction itself was done by “system” rather than “trust”. This technology is characterized by creating all blocks of cryptocurrency transaction information and saving/storing them in a distributed personal PC instead of a central server. Since all of the investors who participate in the network share information, it is safe and secure because it can not forge the transaction history information without hacking each individuals PCs participating in the transaction at the same time.

2. Limitations of cryptocurrency

• External environmental factors
  Is cryptocurrency that is traded with ICT(information communication technology) real money? Cryptocurrency, which has not yet been commercialized, has a limited ability to the external factors that offline payments are not universal and limited to the payment functions. In the article of the Korea Daily, published on November 18, 2017, <I spent 1 week with Bitcoin… it was limited 99% to call it as money> reveals the current function of the Bitcoin as an insufficient currency. Article: after exchanging the Bitcoin, I tried to use it in 81 shops in the metropolitan area indicated by the Coinmap, which is the Bitcoin usage site, but it was actually used only in 28 places. The value of cryptocurrency can be determined for phenomenon unofficial in contrast to the popularity of cryptocurrency. Cryptocurrency, such as Bitcoin, basically depends on the principle of supply and demand, since there is no central management. Cryptocurrency, however, is limited in supply compared to the growing demand, and the price elasticity is very high because it meets very elastic demand and inelastic supply. In addition, although the value of speculative assets has increased due to the surge in speculative demand for trading profits through the cryptocurrency exchange, there is a lack of public cognitive and physical basis for real transactions. The instability of the exchange security of the cryptocurrency is also the external limit of the cryptocurrency. In February 2014, Mt.Gox, a Bitcoin Exchange, went bankrupt after losing about 530 billion Won worth of coins due to hacking, which is a case of security vulnerability in external trading systems rather than cryptocurrency itself. But it was enough to mislead many people that the security of the cryptocurrency itself was vulnerable. In June 2017, Cryptocurrency Exchange BitSum was hacked in Korea. Personal information were leaked, and more or less hundreds of billion dollars in financial damage occurred.

• Internal environmental factors
  Besides the limited “digital assets” function to store value, skepticism is still dominant that cryptocurrency can not substitute currency because there are many constraints on performing other functions of currency such as spot payment. First of all, cryptocurrency is not easy to substitute for money because the price is too volatile. Since there is no centralized management system, there are no upper and lower limit of price, and there are no regulations to braking and collapse and so on. For example, “Ethereum, the cryptocurrency that emerged in 2015, has risen 25 times in the first half of 2017, but its value became unstable enough to fall by about 60% during June and July. Unlike the stock market, where transactions are limited only at certain times of the day, the value of cryptocurrency fluctuating every 24 hours reveals the limit of price stability. The European Central Bank (ECB) said, “Cryptocurrency reports published in 2012 expressed concerns about the volatility of real money, saying that the volatility of Bitcoin could have a negative impact on the real economy.” In order to maintain a stable cryptocurrency value, it is suggested that institutional supplement of central banks are needed. However, there is still no monitoring and supervision between countries.

The anonymity of the cryptocurrency perfectly performs the censorship-resistant-store-of-value role, but the side effect of the anonymity of the cryptocurrency can be a double-edged sword. Cryptocurrency has the potential to become criminal offense because it is difficult to keep track of transactions because all transactions are stored in a distributed manner. Of course, there are disagreements about the fact that cryptocurrency guarantees perfect anonymity, but a transaction structure that is difficult to trace can cause social problems such as tax evasion, money laundering, weapons, and drug trafficking.

| Government Response |

1. Attempting to utilize

There is also a prospect that money substitution is possible by partially overcoming the problems of cryptocurrency. Cryptocurrency, which is superior in security, is likely to evolve into a payment method that exceeds cash because it can be traded in various ways without restriction of physical space. The Bank for International Settlements (BIS), which is responsible for handling currency deposits and transfer between central banks, is determined to respond to the rapidly growing cryptocurrency market and determine whether central banks in each country will issue digital banknotes. In a report released in September 2017, the Bank for International Settlements (BIS) announced that central banks should consider not only the efficiency of existing privacy and payment systems related to cryptocurrency, but also the impact on overall economic policies such as finance and currency.

Recently, some central banks are paying attention to cryptocurrency and Blockchain technology and are spurring research. In fact, some countries are using cryptocurrency for tax collection purposes, and global market researcher Gartner said, “In November 2017, at least five countries in the five-year period will be able to use the cryptocurrency (fiat- backed cryptocurrency.” In particular, the People’s Bank of China is attempting various cryptocurrency and Blockchain at the national level, such as creating an initial form of virtual currency and ending trial operations.

2. Government Regulation

As the public interest in cryptocurrency began to boil up, each country’s government determined that the cryptocurrency market was overheated, such as the emergence of speculative forces, and began to regulate the cryptocurrency market politically. While these various attempts have been made, governments that have determined that the cryptocurrency market is overheated, such as the emergence of speculative power when the public interest in cryptocurrency money boils up, have begun to regulate the cryptocurrency money market politically.

China, which currently accounts for 23% of all Bitcoin transactions, banned the Initial Coin Offering (ICO) in September 2017, which recruited funds through new cryptocurrency. Onward, the Chinese government has ordered the closure of the cryptocurrency exchange, making it difficult for new investors to enter. In the same month, the Korean government also announced that they will open a joint task force(TF) for cryptocurrency institutions and prohibit all forms of ICO regardless of technology&terminology. These regulations can be seen in contrast to the Singapore Mortgage Authority (MAS) that stated “there is no regulatory plan for cryptocurrency” in October 2017.

| Future of Cryptocurrency and Blockchain |

The future of the cryptocurrency based on Blockchain technology that can replace money? In 2016, a global market research firm Gartner said that “Blockchain fever” is spreading around to financial service people, and it is impatient to say that it is too late to introduce Blockchain, but too early in reality.” Blockchain is continuing to improve technical constraints on scalability, and it is still not enough to quickly deal with explosive volumes of transactions, but it is expected that Blockchain will be able to reach the level of global economy if it can extend the possibility of expanding transaction traffic. As such, current cryptocurrency is not being used as currency, but its underlying technology, Blockchain, is being applied to various future industries.

Financial industry is affected most from cryptocurrency. Financial transactions are made through secure cryptocurrency that is immune from cyber attacks, but it is expected to be applied to payment/transfer, investment/loan, etc. as well. In addition, as the reliability of the platforms using the Blockchain increases, platforms with enhanced security in various non-financial industry groups including the game industry as well as distribution and supply chains.

In the book “The Virtual Currency Revolution” by Yukio Noguchi, an expert of public economics, says that online cryptocurrency is basically “information” and the revolutionary change of the future society/financial system can come from the network effects. Ultimately, it is likely that cryptocurrency will push away the Dollar or Yen and be utilized as means of payment at home and abroad, as well as online payments/transfer. There are business models that can emerge when cryptocurrency is spread, including currency exchange, financial deritvatives, and social movements that support development in developing countries or raise donations with cryptocurrency. Using Blockchain technology, Smart City, which is based on a platform built for information security, can be an example of a representative business model.

Underlying the claim that Blockchain will have a greater impact than of the IT revolution, the advantages of cryptocurrency can include the low cost of remittance, security, and the ease of use. The paradigm of industrial systems is already changing due to the advent of cryptocurrency. At this point, we should note that companies can survive this structural change by correctly anticipating the business trends that the cryptocurrency will bring and responding in a timely fashion. In the long run, it is time to strategically prepare future business by categorizing cryptocurrency and future scenarios in which the technology will dominate.