The main cryptocurrency is Bitcoin.
Another emerging one is Ethereum. The market capitalization of Bitcoin was about USD 10 billion in
September 2016. Bitcoin is held as an asset and increasingly being used for
transactions, especially in e-commerce. However, its progress has been hampered
by a number of issues.
Bitcoin uses
peer-to-peer technology to operate with no central authority or banks; managing
transactions and the issuing of bitcoins is carried out collectively by the
network. Bitcoin is open-source; its
design is public, nobody owns or controls Bitcoin and everyone can take part. Through many of its unique properties,
Bitcoin allows exciting uses that could not be covered by any previous payment
system.
Even though prominent providers of
Bitcoin accounts all have an acceptable know-your-customer process, it is still
possible for anyone not to go through such third parties and create a Bitcoin
account anonymously. This raises the concern that Bitcoins, despite many legal
uses, are also used for money laundering and the financing of terrorist
activities.
In addition, a number of security
breaches resulting in losses for users of Bitcoin have hampered broadbased
adoption. The highest profile of such breaches was the theft in 2014 of about
USD 450 million worth of bitcoins from Mt. Gox, at the time the leading Bitcoin
exchange. Though the security issues were not with the Bitcoin technology
itself, but with the exchange platform, this created negative publicity for the
currency as well. It also spurred development toward improving security of
platforms operating with Bitcoin.
As a result, regulators’ main concerns
with cryptocurrencies are illegal transactions and consumer protection. For
example, in 2016, in the light of increasing use of Bitcoin in the country, the
central bank of Kenya advised Kenyans not to use cryptocurrencies and reminded
formally that they are not legal tender.
However, because of the many
advantages of cryptocurrencies, solutions are constantly being developed and
tested to address the preceding issues.
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