Introduction
Cryptocurrency refers to a digital or virtual currency which makes use of cryptography for security purposes. As a result of the use of this security feature, the currency is highly difficult to counterfeit. The most alluring element of cryptocurrency is its organic nature. This implies that the currency is not under regulation by a central authority such as central bank (Nesbitt 2018, p1). It is thus theoretically immune from any form of regulation from the government. Nevertheless, this feature equally aids in the use of this form of currency in money laundering, tax evasion and other nefarious activities. It is worth noting that such approach to the use of cryptocurrency is likely to have a negative impact on international business as a result non-transparency in cash transfers.
The popularity of cryptocurrency
As indicated above, cryptocurrency, which is digital, are highly popular since they are not regulated by the federal bank. Transactions are equally easy to hide from the public scrutiny, increasing chances of transfer of funds that could have otherwise been restricted when using the conventional banking system (Nesbitt 2018, p1).
Pros and cons of cryptocurrency
Pros
The use of cryptocurrency facilitates the transfer of funds between two parties in transactions. This transfer is done through the use of public as well as private digital keys for security purposes. The fund’s transfer is done with minimal if any transaction fees. As a result, individuals who use cryptocurrency are in apposition to forego the high level of funds transfer charges that are charged under the conventional banking system (Nesbitt 2018, p1). The use of blockchain technology enables the development of an online ledger which is highly proof against hackers. It can be employed on all computers with the bitcoin technology. Blockchain technology equally facilitates effective crowdsourcing as well as online voting. Firms such as the JP Morgan chase have adopted the technology as it makes the processing of transactions more efficient (Ron, & Adi 2013, p15).
Cons
Some of the demerits of using cryptocurrencies are that they are not under regulation by central banks. As a result, the currency may be used in the fraudulent transfer of funds, adversely affecting the economy as well as businesses. At the same time, the cryptocurrencies are virtual, hence lacks a central repository system. The implication is that the cryptocurrency balance may end up being wiped as a result of computer crash if there is no backup copy of the holdings. It is equally worth noting that the value of cryptocurrency is based on the forces of demand and supply. As a result, the exchange rate of cryptocurrencies against other currencies has a high rate of fluctuation in the market.
While this creates an opportunity for potential gain, an adverse change in value would result in losses (Nesbitt 2018, p1). For instance when the demand is low the value decline exposing the holder of such currencies to potential losses. At the same time, the currency is not prone to the threat of hacking. In the short period that the bitcoins have been on use, there have been at least 40 cases of theft, including some that were over$ 1million in value, the implications that the holders of such currency are at the risk of losses. In spite of this, the enhancement of blockchain technology in securing the digital currency has been involving, something that has reduced chances of loss of such currency on the online platform.
Cryptocurrency regulation
The cryptocurrencies are not regulated by the central federal banks. This has both merits and demerits. For instance, from the perspective of the account holder, it enables them to transfer funds without restrictions from the central banks. This is more so the case when dealing with cash that emanates from drugs, corrupt deals and other illegal activities. In some cases, depositing of such money in banks may result in asset freezing when the banks become aware of the sources of these funds. This is not possible when it comes to the use of cryptocurrencies, increasing the ability of individuals to secure their funds irrespective of the source (Ron, & Adi 2013, p20).
Lack of regulation of cryptocurrencies by central or federal banks equally has some demerits to the economy. For instance, it may result in the government losing money meant for development to corrupt cartels that transfer the funds through the cryptocurrencies. This would end up adversely affecting the economy. At the same time, the lack of regulation will result in a scenario where lack of regulation will result in a high level of variability of the value of cryptocurrencies in the market. This has the potential of reducing the predictability of such currencies in the market. Some level of regulation of this form of currency may thus aid in minimizing these challenges both to the economy and individual cryptocurrency users. The regulators need to ensure in the market that the market is not manipulated through variation in currency value. This will ensure a more predictable business environment. Trade in illegal activities such as the sale of drugs is likely to increase when trade is carried out with a limited level of regulation (Nesbitt 2018, p1).
Effect of cryptocurrencies on international business
Today, cryptocurrencies are having multiple impacts on people and organizations in the international environment. The application will enable individuals and organizations to engage in cross-border transactions through safe payments and transactions. As a result, the level of trade in the global arena will increase. Due to lack of regulation, it will be possible for firms to transfer funds from one location to another. This move will increase capital flight and international trade. The only disadvantage is that the new technology would result in growth in global illegal businesses. Trade on drugs and other illegal activities will increase since payments can be easily paid and received through a platform where the government may not be in a position to detect such transactions (Lo & Wang 2014, p4).
The low charges on transactions involving cryptocurrencies are likely to motivate small businesses to make payments of goods and services in the international arena through the use of bitcoins. Another value of using bitcoins in international trade is the elimination of the challenge of exchange rates. When firms are dealing with customers or stakeholders from multiple countries, they are exposed to the foreign exchange risks for all of these currencies. When everyone has access to bitcoins around the world, a single currency would then be used, hence facilitating international trade. The high speed at which the funds are transferred will also increase international trade (Gans, & Hanna 2013, p8).
Conclusion
Based on the above presentation, bitcoins have emerged a major currency in international trade. Due to its virtual nature, it is easy to transact with over the internet. The use of the blockchain technology has led to securing of such digital currencies. The currency is not regulated by a central bank. As a result, individuals and organizations can transact using this currency with limited scrutiny. The ease at which the currency is transmitted has increased international trade. Nevertheless, the use of such currency has some challenges. The currency may be lost online as a result of the crashing of the computer bearing the platform. At the same time, it promotes trade in illegal activities, corruption and fraud, adversely affecting organization performance or economic growth and development of countries.
List of References
Gans, J. & Hanna, H. 2013. Some Economics of Private Digital Currency. Chicago: University of Chicago Press.
Lo, S.,& Wang, C. 2014. Bitcoin as money. Boston: Federal Reserve Bank of Boston.
Nesbitt, J. 2018. How bitcoin should shake up intentional trade. Retrieved from
Ron, D. & Adi, S. 2013. Quantitative Analysis of the Full Bitcoin Transaction
Graph, “Financial Cryptography and Data Security, 7859(1): 6–24.
