Finance

Finance, Markets, and Organization

Introduction

This report contains the information regarding the claim of cryptocurrency and also contains the information of Bitcoin’s impact over the existing financial market networks or ecosystem. Further, this report discusses the ICO and also explains the dematerialized custodianship of securities. It highlights the aspects of comparison between custodianship of Bitcoin and ICO tokens. This report discusses further the allegations of blockchain and its impact on bitcoins.

Question 1

 Description of the cryptocurrency

First decentralized Cryptocurrency was created in 2009 as a Bitcoins, after that other cryptocurrencies have been developed. Cryptocurrencies were the design of the digital asset that was developed to work as a medium of exchange among the users. In addition, cryptocurrency was used to secure user’s transactions, clarify the transfer of assets and to control over the formation of extra units. Different types of cryptocurrencies are digital currencies, virtual currencies and alternative currencies (Cheung et al., 2015). The systems of cryptocurrencies make users capable to transfer funds without the involvement of central authority and third party. Cryptocurrencies offer a secure and best exchange system for its users as the term of the decentralized trading system. Decentralized cryptocurrencies are also helpful to prevent the scam and stolen of currencies through hackers or robbers. Further, cryptocurrencies have been taking the land increasingly through its mechanism of automated issuance of Bitcoins which tries to block the control of currency.

Furthermore, decentralized cryptocurrencies create the financial market more efficient and effective towards its users through preventing the interference of inter-mediators and it also encourages the users to do trading without any stress. The decentralized trading system does not rely on the mediators or third party, beside this it provides the control over the funds by its users their own (Cocco et al., 2017). In order to decentralize trading system, it is a system of exchange market which gives the perfect combination of buyer and seller and it also facilitates to their transactions through the decentralized ledger and blockchain. The trading under the decentralized trading system is done through the traders directly with the help of automated procedure which keeps in place of exchange.

Analyze the importance of cryptocurrency

The decentralized cryptocurrency was looked unlike or unfamiliar in the beginning but as the days have been passing, the value of the decentralized cryptocurrency has been increasing. The decentralized trading system was an evolution for the traditional financial system due to its facilities which provides privacy to the users and they do not need to disclose their details and information in front of anyone except the bank transfer under this exchange method the user need to disclose its detail. In addition to this, decentralized trading also provides the safety from the risk of downtime so the users are able to do trading without interruption (Scott, 2016). The decentralized trading system uses its blockchain technology in cryptocurrencies to keep currencies safe and maintained. Cryptocurrencies are presented in the market with lower transaction cost and some are presented without transaction fees so that customers can be encouraged towards invest in cryptocurrencies and also encouraged to maintain their wallet by own.

Cryptocurrencies also brought the advancement in the traditional financial market and converted its functions included new technologies and features. Its new features for identify the theft among the exchanges of currency by using push mechanism that is authorized by the currency holder to exchange the exact amount what they want without providing further details. This decentralized trading system provides the safety from every kind of theft and fraud in exchange of cryptocurrencies and it also makes the financial market efficient for its users in case of trading. Decentralized trading gives a quick excess to its users so they can trade in exchange market without the interference of inter-mediators (Li, and Wang, 2017). It offers the decentralization in the global market with the help of cryptocurrencies. Cryptocurrencies are profitable to its customers due to its reorganization at the universal level and it is used at international level. Cryptocurrencies provide the facilities likewise time-saving and money savings through its decentralized trading system.

Hence, it is described that the cryptocurrencies are profitable to its users and it is also useful to create a financial market more efficient with new technologies and innovative ideas.

Question 2

Bitcoin’s impact on existing financial market networks/ecosystems

The exchange market has been impacted very deeply by the cryptocurrencies like Bitcoins. Those elements which impacted the financial market, are looked like threatening that damage the stock market with deep impact. One of the major issues is Bitcoin bubble which is affected the financial market networks (Alrwais et al., 2017). It can be seen that the exchange market has been growing steadily, at the same time the impacts of Bitcoins among the users are being also increased simultaneously. These major impacts, by which the financial market networks have been also affecting, are as following:

Impacts on the central banks

From early days, Bitcoin’s value has been increasing significantly across the world. Traditional transaction or exchange activities had been holding for few years but now the time has been changed. There is a different way of exchange funds and currencies which has been introduced after introducing cryptocurrencies as a digital asset which could be transferred without interferences of inter-mediators or agents. These transfers have been doing independently between two parties through the decentralized trading system nowadays. Initially, the currency exchange and transaction were done with the help of central banks who worked as an inter-mediator (Walch, 2015). Apart from this, when the Bitcoins came to the knowledge of users, then the importance of central banks were decreased. The decentralized trading system was more efficient and easily accessible so the users shifted their interest from traditional trading to decentralized cryptocurrency because decentralized trading was provided safe and secure trading to the customers by the cryptocurrencies without interruption of the mediators. Decentralized trading also prevents the manipulation in the transaction of currencies or funds.

Moreover, the Bitcoin’s impact on the central banks cannot be taken lightly. The central banks had been joined with other banks for making it world’s leading bank towards international settlements but after the introduction of cryptocurrencies, the central bank’s capability has interrupted.

Its impact on the business

This is the initial stage of the cryptocurrencies so it also has some limitation all over the world and beyond these limitations, users have to face some consequences. In process of decentralized trading, blockchain provides the detail of amount or fund and the Bitcoin provides the address of each exchange. In addition to this, every kind of details is provided by the decentralized cryptocurrency except personal and business detail. So this is the user’s responsibility to keep an eye over the transaction that with whom the transaction is being done (Peter and Moser, 2017). This world is full of knowledgeable persons and these persons are two types. Some are good and some are bad who always keep their mind in wrong and illegal activities. The cryptocurrency is an easy and simple way by which a fraud can take place. Bitcoins are the digital currency and it can be stolen by the thief and it also can be lost so users need to store it in proper ways because if someone gets the access of user’s account in the business, he can steel Bitcoins.

Its impact on investor’s confidence

The trading system of Bitcoins is that when the rise comes in Bitcoin’s value, the investor’s confidence is also increased simultaneously and instead of this if the prices are not increased of Bitcoins, that means the users are also not interested to invest in Bitcoins. In other sense, the user’s confidence of speculation or taking a risk in the global equity market is depended on rising of cryptocurrencies (Franco, 2015). The internet bubble also could have a deep impact on the mentality of investors.

Bitcoin’s impact over the speculations

Bitcoin’s transactional activities also impact the speculations in the financial market. The rise in the Bitcoins encourages the speculators to sell the Bitcoins and instated of this, it encourages the speculators to buy Bitcoins for future (Elendner et al., 2016). The speculation possibilities are too enormous because of extreme lows and highs in presents of Bitcoins in the exchange market. The trading in shares is too easy apart from the transaction in Bitcoins. Further, it can be concluded that cryptocurrency seems to increase in coming years.

Hence, these are some impacts which are impacted the financial market networks most. By the deep analyzing of these impacts, it can be said that Bitcoins good as well as bad so the users need to do the transaction in cryptocurrencies with more efficiency and smartness (Böhme et al., 2015). As per this report study, it can be advised to Mr. John Brown that the investment can be made in Bitcoins but deeply analyze of the market is needed as it is positive or negative insight of investment because an efficient market leads the effective investment strategy. Mr. John needs to finalize those factors of Bitcoins which are impacted the financial market networks.

Question 3

Detail discussion of ICO and Custodianship of Bitcoins

ICO means Initial Coin Offering. ICO is referred the condition in which investors are offered some units of new crypto-currency by some person in exchange of crypto-currencies likewise Bitcoins and another one. ICO is used by the new set up businesses mostly for increasing capital in their business. In other sense, some number of cryptocurrencies is sold to project bankers in exchange for different cryptocurrencies or legal tender (Adimi, 2018). ICOs have been using since 2013 to fund for developing the cryptocurrencies. As per market demand, pre-created tokens can be exchanged or traded easily in against of all type of cryptocurrencies. Fundamentally, ICO is started by the creation of a plan on whitepapers which describes the plan that what the plan is and how much digital currencies are required for the project to be complete. In addition to this, this is also described that what kind of cryptocurrency would be required. Therefore, in order to ICO campaign, some distributed crypto-coins with virtual currency are purchased by firm’s supporters and devotees. Apart from this, these coins are denoted as tokens and these tokens are purchased by investors in initial transactions of the public offering.

In context to dematerialized custodianship of securities, it is described as the specialist organization of finance which holds the securities like shares that can be certified or non- certified form. Dematerialized custodianship of securities is preferred due to its ownership which can be transferred easily by way of book entries only besides transfer of physical certificates. In relation to ICO, the dematerialized custodianship of securities is stated that the centralized depository of securities is a kind of organization that listed every kind of organizational shares even if it is listed or non-listed (Vital et al., 2018). Those investors who are interested to invest their money in cryptocurrencies and certified or non-certified companies, are invited by the centralizes securities depository. This institution represents the value of different organization in front of public and as per this representation, public decide that where they should make the investment.

In order to the custodian of Bitcoins, 15 times more cost is held by the institution than storing gold (Verma and Bharadwaj, 2015). Bitcoins have different kind of safety levels to keep the crypto-currencies secure from the hackers that result in increases in the cost of development programs of physical computer software and hardware. Even then, people are interested to pay more for cryptocurrencies because they earn more profit than to cots so they ignore high costs and expenses. Apart from this, custodian of tokens is being proved more profitable due to Bitcoin currency which has been created huge impacts on the financial market. The formation of coins and tokens which are considered as a digital currency, are the part of cryptocurrencies.

In addition to this, the tokens are held the large value in the market so the public has willing to invest and make a huge profit. But the difference between institutions and public is that the institutions are held fewer Bitcoins due to the high demand of Bitcoins (Poon and Dryja, 2015). It is also identified that all the coins and tokens are declared as cryptocurrency even most of the coins do not function like currency.

Analyze the measures which are done by the financial authorities, regulators and financial exchanges to reduce counterparty risk in the established marketplace

In terms of financial management, the visibility in global financial crises is related to counterparty risks. It is also related to the trading risks for a particular country which impacts the business transactions between two parties. Same standards are followed by the financial authorities, regulators and financial exchanges in order to measures the counterparty risk. This makes them capable to decrease counterparty risk in the recognized marketplace. Further, it is also evaluated that what is the present condition of credit works of consumers and what are the main sources of the loan in this situation (Akkizidis and Stagars, 2015). Additionally, the financial institution also measures other aspects that are coverage ratio, cash flow, debt to assets ratio and debt-equity ratio. It is helpful to represent the overall financial conditions of the creditors and investors and further this will help the financial authorities, regulators and financial exchanges for reducing counterparty risk.

Though, counterparty risk is different from Bitcoin because Bitcoin risk depends on those factors which can be decreased through developing specific standards or rules in this field (He et al., 2016). So, there is need to control Bitcoins in the financial market by developing strict rules and regulations.

Question 4

Meaning of Blockchain, its operations and how it is related to Bitcoins

The blockchain is stated as a new platform technology that is useful to record and evaluate the value of exchange among the interrelated users. It is described as a secured and visible track of finding the ownership of assets earlier, while the transaction is being done or after any transaction (Swan, 2015). As per Blockchain, it is divided into two parts like Block and chain. In this technology, the first part is blocked in which each transaction is considered between two parties in the network and the second part is a chain in this considers the cumulative set of transactions. This Blockchain allows to the set of users to verify and deal in an effective way. For managing and recording the public transactions by using digital way and through the decentralized ledger, it is considered as an innovative technology.  Blockchain has been designed to inherently resist the data modification. The Blockchain is designed for security and illustrate a distributed system of computers with huge Byzantine fault tolerance. Blockchain technology is strongly connected with the Bitcoins and other cryptocurrencies. Blockchain technology facilitates to record and possessed transactions without the interference of third party (Tapscott and Tapscott, 2016). The blockchain is considered as a distributed ledger which is valuable to trace the transactions which occur due to transactions between two parties and while transferring the cryptocurrencies between interrelated networks. The blockchain is connected to the Bitcoins because Blockchain technology was developed to make the Bitcoin as a first digital currency for solving the double spending problems without the involvement of trusted authority or central server.

Importance of Blockchain in the clearing and settlement processes of established financial market

For clearing and settlement processing of established financial market, Blockchain may be used. Basically, the industry structure is governed by the central authority in order to clearing and settlement processing (Zheng et al., 2016).  In case of decentralized Blockchain, it may and may not work in a centralized way. At the present time, for making the transactions secure and easier, Blockchain technology is used by banks and stock exchange companies. Blockchain technology may be beneficial for clearing and settlement the processing through the savings by streamlined processing of back office as well as clarifying the identified or certified transactions.

Further, Blockchain may also help to keep the history of transaction records and it also may help to make the parties capable of buying and selling automatically on behalf of B2B and B2C. This technology may be proved innovative due to its automation which provides the user’s facility to use transparent real-time data and also give the authority to the immediate settlement of transactions (Kiviat, 2015). It also may help to decrease the requirement of the post-trade confirmation and central clearing while the settlement cycle which helps the bank to make settlement and clearance within the time. Blockchain may also beneficial for decreasing the possibilities of data errors and give the speed of the settlement process.

Description of the usefulness of involved key market entity in the post-trade processing of financial market transactions

The blockchain is an essential technology to make banking and financial market processes faster and error free. In terms of cryptocurrencies, blockchain has become famous for raising funds by ICO which is also responsible to increase the regulatory securities. Additionally, it is also stated that blockchain may also be beneficial for banking and financial sector by reducing the time that is involved in the process (Rainelli Weiss and Huault, 2016). For keeping the records of loans and securities efficiently, this technology is used.  In order to get the benefits, it can be effective for the financial institutions and banks to transfer the elements of payment system on the blockchain. Blockchain technology may be essential for the trade finance that is depended on paper like LOC and BOL and so on.

Further, it can be beneficial for providing a solution to access the required information instantly. Blockchain can provide the paperless process and also make the process time saving due to which it may contribute to cost reduction of trade finance activities (Santo et al., 2016).  In addition to this, blockchain may enable the banks and financial institutions to maintain the loan lifecycle and speed-up its process so the customers can get the results with no time.

Conclusion

On the basis of above discussion, it can be concluded that blockchain technology is an innovative technology which is used by different business and banks to make their process faster, more efficient and time-saving. Moreover, it can also be summarized that the counterparty risk can be reduced by financial authorities by adopting Blockchain technology. This can also help them by guiding about the customer’s creditworthiness.

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