Karelia University of Applied Sciences

Bachelor of Business Administration (BBA)

The Impact of Cryptocurrency on

Traditional Financial Markets

Thi Ngoc Nga Vu

Thesis, April 2022

 THESIS
Aprill 2022
Degree Programme in International Business

Tikkarinne 9
80200 JOENSUU
+358 13 260 600 (switchboard)

Author(s)
Vu Thi Ngoc Nga, 1904659

Title
The Impact of Cryptocurrency on Traditional Financial Markets

Abstract

The scientific and technological revolution 4.0 is changing the landscape of the economy
and society. Blockchain and cryptocurrencies are among these powerful innovations.
Recently, a wave of cryptocurrency investment has spread to countries around the
world. The impact of cryptocurrencies is investigated in this thesis.

"Cryptocurrency" has started to become a buzzword. The growth of the market has
made investors eager to participate. However, in order to minimize the risks when
participating in this market, background knowledge about the market and
cryptocurrencies is necessary. This thesis serves to help readers have the most basic
judgments about the cryptocurrency market.

The thesis uses the appropriate method of analysis and synthesis. The definitions are
given to help readers understand some basic knowledge about the financial market and
cryptocurrency. Historical knowledge is also analyzed to provide a general overview of
the development process of the market. The result that the author wants to bring is to
help readers understand some basic content about the financial market and
cryptocurrencies.

Language Pages 54
English Appendices 2
Pages of Appendices 1
Keywords
Cryptocurrency, finance, market, blockchain, bitcoin
Contents

1 Introduction ....................................................................................................... 5
1.1 Background…………………………………………………………….……5
1.2 The aim of the thesis………………………………………………………..6
1.3 Scope of the thesis………………………………………………………….6
1.4. Research methods …………………………………………………...…….7
1.5 Outline……………………………………………………………… ……….7
2 Overview about traditional financial market ..................................................... 8
2.1 Traditional financial market .................................................................... 8
2.2 Gold standard ....................................................................................... 10
2.3 Bretton Woods system ......................................................................... 11
2.4 Fiat Money …………………………………………………………...……13
2.5. SWIFT System ……………………………………………………………14
3 Overview of cryptocurrency ........................................................................... 15
3.1 Definition of cryptocurrency ................................................................. 15
3.2 History of cryptocurrency ..................................................................... 16
3.3 Common cryptocurrencies ................................................................... 17
3.3.1 Bitcoin ( BTC) ....................................................................................... 17
3.3.2 Ethereum ( ETH) .................................................................................. 18
3.3.3 Tether ( USDT)…………………………………………………………….19
3.3.4 Dogecoin ( DOGE)………………………………………………………..20
4 Advantages and disadvantages of using cryptocurrency.............................. 21
4.1 SWOT Analysis……………………………………………………………22
4.2 Advantages ………………………………………………………………23
4.3 Disadvantages. …………………………………………………………24
5 Regulation…………………………………………………………………………25
5.1 Acceptance and legal status…….……………………………………….25
5.2 Regulatory Framework……………………………………………………29
5.3 The adoption of cryptocurrency – Case: Vietnam……………………..32
6 Comparision between Cryptocurrency and Stock market ............................. 35
7 Impact of cryptocurrence ................................................................................ 37
7.1 Bitcoin price crashes……………………………………………………...37
7.2 Cryptocurrency affects financial market. ……………………………….39
8 The illegal activities related to cryptocurrency.………………………………..41
8.1 Ponzi Schemes …………………………….…………………………….41
8.2 Money Laundering…………………………….………………………….42
8.3 Crypto hack……………………………………………………………….43
9 Conclusion………………………………………………………………………...43
References ...............................................................................................................

Appendices
Appendix 1 Evolution of the International Moneytary System
Appendix 2 Top 8 currencies in market ( Coinbase 2022).
 5

1 Introduction

1.1 Background

Technological developments have brought great inventions, and one of the

greatest is blockchain technology. Blockchain technology can revolutionize
supply chains, healthcare, and IT infrastructure (Reiff 2021). A blockchain is
what forms any cryptocurrency, but readers should note this thesis will not
attempt to explain the technical side of how a blockchain works. Rather, it will
focus on the financial side of cryptocurrencies. Not only the masses, even
experts, businesses and governments are talking about cryptocurrency. Some
coins (also a generally accepted term for cryptocurrencies) are very volatile and
cause losses for investors. Cryptocurrency frauds, cryptocurrency Ponzi
schemes have also been reported. Such incidents have raised the need for
adequate research on the new phenomenon, and investors are beginning to
manage their crypto portfolio right. Cryptocurrencies have created an
unprecedented currency; thus, understanding what it is and what it does to the
financial market is now practical.

The process of formation and development of cryptocurrency has a presence of

Bitcoin - the first created cryptocurrency. Bitcoin made its first appearance in a
White Paper by Satoshi Nakamoto in 2008 (Sharma 2021), though it is still
unclear whether Satoshi was one single developer or a group of them. Bitcoin
is a digital currency that is characterized as an electronic payment system
based on cryptographic proof rather than trust. Complex cryptographic
techniques based on open-source software are used to create the digital
currency. They are solely traded on the internet and are not controlled by any
individual, organisation or government. This is completely different from their
government-issued counterparts such as the US dollar or euro. My intention
when writing this thesis is two-fold: (1) to provide a basic level of knowledge on
the cryptocurrency market, and (2) to build a future investment plan of my own.

The recent strong price fluctuations of cryptocurrencies on the world market

have made the investment trend in virtual money bloom. This poses an urgent
 6

need to understand clearly the nature, reality, benefits and advantages and
disadvantages of virtual money to have an accurate view of the development of
this market. At the same time, the author has been investing in this market for a
few years, having experienced unexpected price movements. The author wants
to write a thesis on this topic to have the opportunity to learn more deeply about
the market-related problems that the author is facing.

1.2 The aim of thesis

The ultimate goal of the thesis is to measure the impact of cryptocurrencies on

traditional financial markets. In the process, readers will find a summary of how
the traditional financial market was formed and then how cryptocurrencies came
into play. Definitions of electronic money and many common cryptocurrencies
are also included. General regulations on cryptos, countries that have accepted
them and the role they play are also explored. In addition, I found it vital to
dedicate one seperate section to outline illegal activities through
cryptocurrencies trading. Case studies will also be provided to facilitate
visualisation of the problems.

1.3 The scope of thesis

This thesis analyses cryptocurrencies in how they impact the financial market.
Readers should expect to find knowledge at the basic level, which is sufficient
to build the foundation for more in-depth analyses. To guide readers through the
thesis, I organised the paper into four objectives. The first is the definitions and
origins of cryptocurrencies. This preliminary part is important, as a clear
understanding of cryptocurrency is required for the following sections. The
second objective is to point out the advantages and disadvantages of the digital
coins. This is done by analysing and extracting from published papers. The third
objective is to study the traditional financial markets and regulations they have
on cryptocurrencies. This is also where readers will find which countries accept
the new currencies. The final objective, which is also the goal of the thesis, is to
present the full picture of how cryptocurrencies affect the market. Examples and
 7

case studies will be given to make the thesis more realistic and understandable.
The scope of the thesis is summarized in the following questions:

(1) What is cryptocurrency?

(2) What are the advantages and disadvantages of cryptocurrencies?

(3) What are the regulations regarding cryptocurrencies?

(4) What is the impact of cryptocurrencies on traditional financial markets?

1.4 Research method

The method used in the thesis is to focus on analyzing and synthesizing

knowledge related to the topic. Published papers are a major source. The
author also sourced tables and figures from reputable sites which guarantee
their content. The data used is guaranteed to be authentic and reputable.

1.5 Outline

The thesis consists of nine chapters. It starts with an introductory chapter about
the thesis, research purpose and method. Chapter two explains the key terms in
the financial market such as Fiat money, SWIFT system, Gold standard and
Bretton woods. Chapter three covers knowledge about cryptocurrencies,
including their definitions and history. A list of popular coins will also be
presented. Chapter four includes a SWOT analysis that shows the pros and
cons of using cryptocurrencies. In Chapter five, acceptance status and
regulations are analysed. Chapter six is a comparison between
cryptocurrencies and stocks. In Chapter seven, the impact of cryptocurrencies
on the financial market will be explored with the aid of real case studies. Illegal
activities related to cryptos are covered in Chapter eight. The final chapter
includes the conclusion.
 8

2 Overview of the financial market

2.1 Traditional financial market

The smooth operation of capitalist economies is dependent on financial markets

(Hayes 2022). Financial markets facilitate the transfer of funds from individuals,
businesses, and governments (Mishkin 2012). The financial market is an
environment for stabilizing and regulating money circulation, ensuring the stable
and healthy development of the economy.

Financial markets make securities products profitable for those with excess
funds (investors/lenders) while also making the money available to those who
require additional finances (borrowers). In direct financial markets, funds are
transferred directly from lenders to borrowers by means of securities, such as
stocks, futures, ETFs, bonds, mutual funds and other financial instruments. In
the indirect market, a financial intermediary will play an important role in
facilitating the transfer of cash between surplus and deficit accounts. The main
responsibilities of a financial intermediary are collection and risk management in
lending, with a major focus on credit risk management. A well-functioning
financial market improves the economic well-being of society (Mishkin 2012).
 9

Figure 1. Flows of Funds Through the Financial System (Mishkin & Eakins
2012).

According to Figure 1, in direct finance, borrowers borrow directly from lenders

through financial markets. This gives lenders profitable investment opportunities
and borrowers the capital required. The financial market plays its role as a
marketplace where borrowers and lenders meet, thereby improving the
efficiency of the economy. The following example should help visualise the
concept. Company A needs capital to develop a new product line. Company A
issues bonds, and lenders buy the bonds. This means that Company A will pay
back to lenders at a particular interest rate by a due date. Company A can now
fund its business plan, and lenders will get back what they paid plus interest. In
indirect finance, a financial intermediary will participate in the movement of
capital. In most cases, a bank will play this intermediary part. The basic
operation is for most parts the same as direct finance; the only difference is the
involvement of a financial intermediary. The financial market is considered as
one of the factors that initiate the market economy, creating the most favorable
environment for entities to reconcile financial interests.
 10

Financial markets are there for three main reasons. The first is to resolve the
gap between the supply and demand for capital. The second is the ever-
increasing needs to transfer, buy and sell securities between owners. The third
is to provide a medium where more flexible forms of capital mobilisation can
take place as the commodity economy diversifies. The primary function of
financial markets is to link people so that money can flow to where it is most
needed (Bank of England 2020).

Examples of financial markets are listed as stock market, over-the-counter

market, bond market, money market, derivatives market, cryptocurrency market
(Hayes 2022). Cryptocurrencies, decentralized digital assets are also included
in the financial market. Cryptocurrency operating on blockchain technology -
has appeared and started to gain popularity in recent years. Thousands of
crypto tokens are currently available and exchanged on several independent
online crypto exchanges around the world.

2.2 Gold standard

The formation of the monetary system is also a key point in the analysis of
financial markets. The gold standard was once a regime used by many
governments to, in a sense, determine how much money should be in
circulation. From the 18th century, the gold standard began to be used in
England, then spread to European countries and America. From the 1870s until
the onset of World War I in 1914, the conventional Gold Standard prevailed
(World Gold Council 2022). Currently, no country uses the gold standard
system.

The gold standard is a system in which a country's currency is directly linked to

gold in terms of value (Chen 2021). Countries fix the value of their currencies in
gold, with no restrictions on purchases, and sell gold at a set price. The import
and export of gold between countries is free to operate. The Gold Standard had
certain limitations. The money supply would expand and inflation would rise as
 11

new gold mines were discovered. In addition, countries with a scarcity of gold
were inherently handicapped in expanding the economy. During the Gold
Standard spell, countries in economic deficit had to go through a period of
stagnation, and those in economic surplus had to go through an inflationary
period. After World War I, many economies experienced great difficulties. In
September 21, 1931, Britain was forced to suspend the gold standard; it was a
historic date (Kitson 2012). By the time World War II ended, the United States
owned 75% of the world's gold (World Gold Council 2022). However, as the
world economy gradually recovered, US gold reserves began to decline. Along
with increased import demand, the United States experienced high inflation in
the 1960s. In 1968, the United States and several European countries stopped
selling gold on the world market, allowing gold prices to float in a free market,
helping countries remove the pressure to value their currencies. However,
economic competition with other countries accompanied by debts and expenses
to pay for the Vietnam war put pressure on the US expenses. Towards the end
of 1968, countries began to demand that the US allow them to exchange dollars
for gold, forcing president Nixon to stop allowing the exchange of dollars to gold
in 1971. By 1978, the Gold Standard officially collapsed. (Selgin 2012, 16-21.)

2.3 Bretton Woods system

Historically, The Bretton Woods system was a significant step forward in the
development of the international monetary system. After the Second World War,
the situation of European countries was devastated both economically and
socially. The economic crisis has become more and more serious and caused
many negative consequences. At this point, however, the economic potential of
the United States is stronger than ever. The United States has become the
financial and economic center of the world. The dollar was the only currency
that was directly convertible to gold at the time (Lioudis 2022).

Faced with extreme urgency, in July 1944, a conference on a new international

monetary system was held at Bretton Woods in the presence of representatives
 12

of 44 allied nations (The World Bank 2022). As a result of the conference, a

new monetary system was established called the "Bretton Woods system". The
Bretton Woods system linked all currency exchange rates, which were
previously tied to the price of gold, to the price of the US Dollar (Chen 2022).

The conference also decided to establish two new organizations, which had an
important influence on the entire monetary system. The first organization is
called the International Monetary Fund, which monitors exchange rates. At the
same time, this is also a place to help countries with budget deficits to borrow
money. The International Bank for Reconstruction and Development was also
established from this conference. The mission of this bank is to provide financial
aid for post-war reconstruction and economic development in countries.
(Ghizoni 2022, 1.)

According to the Bretton Woods system, countries establish their monetary

policy by using the US dollar as the basis for pricing, while the US dollar is
priced in gold at $35 = 1 ounce (Kenen 2008). Countries must commit to a
responsible monetary policy that keeps their exchange rates fluctuating ±1% of
par. After meetings between the countries, an important international agreement
called the Bretton Woods Monetary System was built mainly on the basis of the
US dollar. The Bretton Woods period is separated into two parts: the pre-
transitional phase and the transitional phase (Bordo 1992, 3). The Bretton
Woods system was a step forward in international financial relations and
worked quite well for nearly 30 years. However, in the early 1970s, the US
debts increased, and US gold reserves and the IMF could not guarantee the
gold standard for the US dollar. The shutting down of the gold window on
August 15, 1971 was considered by global monetary authorities as proof that
the dollar was overvalued (Bordo, Humpage & Schwartz 2011). President
Richard Nixon announced an end to the conversion of the US Dollar to gold in
August 1971. At that time, US President Nixon implemented three emergency
acts. The first is to stop gold transactions to protect the remaining gold reserves
of the US. After that, the US implemented a 10% tax on all imports and
introduced a 90-day wage policy and price freeze to manage US inflation.
(Bordo 2019.) Despite all the efforts, the acts did not change the situation:
 13

inflation was so high that the Bretton Woods system officially collapsed in 1973,
allowing all currencies to float.

2.4 Fiat money

Fiat money refers to government-issued money that is not backed by tangible

assets such as gold or silver. The formation and development of fiat money has
made an important contribution and helped and supported the governments of
many countries in the management of the monetary system. The value of the
commodity does not control the value of the fiat currency (Chen 2022). The
value of fiat money is decided by supply and demand, as opposed to
commodity. Commodity money is made from precious metals like gold and
silver, while promissory notes are a redeemable commodity (Institute of
Corporate Finance 2022).

Most modern banknotes such as dollars and euros are fiat money. The origins
of fiat money go back centuries in China. Initially, it was exchanged for silk, gold
or silver. After that, European countries and the US also started experimenting
with fiat money. To this day, fiat money is still officially used and has a certain
value.

Throughout the 20th century, however, the United States restricted the use of
commodity-based money. In 1972, under President Nixon, the United States
abandoned the Gold Standard entirely, ending the system on an international
scale, and transitioning to a fiat money system. (Federal Reserve History 1971.)
The value of fiat money is based on usability. Fiat currencies are widely
accepted around the world, and one can use them to buy almost any good or
service. Currently, fiat money is used globally. Fiat money includes banknotes,
coins, credits, loans or bonds. In some cases, if governments can print too
much money, it can lead to hyperinflation and become a big danger. The money
supply is influenced by the monetary base as well as the rate of circulation
(Pettinger 2019).
 14

2.5 SWIFT System

The Society for Worldwide Interbank Financial Telecommunication, or SWIFT

for short, is a cooperative that facilitates safe and secure financial transactions.
SWIFT does not conduct money transfers by itself, but supports member banks
to transfer money to each other or exchange information. Whether individuals or
organizations use different banks, they can still pay for transactions with SWIFT
code. Each member organization will have its own SWIFT code. This code is
capable of identifying the bank name, country, city and branch. SWIFT is a
messaging network that allows financial organizations to send information and
instructions securely using a standardized set of codes (Seth 2022).

In 2020, there were about 38 million transactions made every day through the
SWIFT platform, worth trillions of dollars (Bergin 2022). SWIFT is subject to
Belgian law and to European Union regulations. SWIFT routes money transfers
from one bank to another, letting them know where the money is ultimately
going. Money moving from one account to another often goes through multiple
banks before reaching its final destination, especially if foreign currency is
involved. SWIFT makes international trade, cross-border payments and
international money transfers easier.

Figure 2. Cross-border Payment Process (Congressional Research Service

2021).

A cross-border transaction will include the sender, the sender's bank, the
receiver and the receiver's bank. This transaction uses the SWIFT code to
 15

complete the transaction. As shown in Figure 2, the sender will send money to
the recipient's account, including full information and SWIFT code. Once the
SWIFT code is available, the bank determines to where the transaction is sent
and then executes the transaction and sends a notification so that the recipient
bank can verify and agree. The money will then go to the recipient's account.
The SWIFT code makes this transaction fast and increases accuracy.

SWIFT provides each financial institution with a unique 8- to 11-character

passcode. They can be SWIFT or BIC (Banking/Business Identifiers) codes or
ISO 9362 codes (standard format of business identifiers). Each SWIFT code will
have full information about the country, city, branch and bank name of each
member. (American Commercial Bank 2022.)

SWIFT has a particularly important role which can affect the economy of a
country. An example of the importance of SWIFT is the current state of Russian
banks. When Russia invaded Ukraine, Russian banks immediately received
sanctions and were removed from SWIFT. The Russian economy has suffered
damage, making it almost impossible to participate in international financial
transactions, which directly affects Russia's revenue comes from oil and gas
profits ( The Hague Centre 2022).

3 Overview of cryptocurrency

3.1 Definition of cryptocurrency

Cryptocurrencies are only available in encrypted form and not in physical form.
Not only that, cryptocurrencies are stored and traded through designated
software or smart deposit devices. There is no central authority responsible for
managing and maintaining the value of cryptocurrencies (Ashford & Schmidt
2022). All transactions are carried out on the internet or through specialized
networks and applications. The blockchain system is the core technological
element that creates today's cryptocurrency. It does a perfect job of making
 16

sure the cryptocurrency is immutable, decentralized, and extremely transparent.

That explains why cryptocurrencies are not controlled or issued by any
government. Cryptographic breakthroughs are primarily responsible for the
basis and foundation of digital assets.

In the virtual currency world, in addition to cryptocurrencies, there are also new
types of blockchain products such as decentralized finance (DeFi), NFT or the
Metaverse, etc. In the future, there will be some potentiel to develop
cryptocurrency markets.

3.2 History of cryptocurrency

Blockchain technology is the beginning of the formation and development of

cryptocurrency. Blockchain algorithms have created momentum for transactions
of cryptocurrencies. Each coin is understood as a file stored in a digital wallet.
. . . . . . . . . . .

Archived files are operated from person to person thanks to blockchain.

. . . . . . . . . . .

Programmer(s) under the name Satoshi Nakamoto designed The Bitcoin

protocol; it was released as open-source software in 2009. Bitcoin is gaining
. . . . . . .

traction among those who need to transmit money across borders without being
regulated by banks or governments (Guardian Nigeria 2021). Within only one
year, from 2009 to 2010, nearly 100 other digital currencies were created. By
far, Bitcoin is still the most famous and valuable cryptocurrency. Thousands of
alternative cryptocurrencies besides Bitcoin, collectively known as Alt (short for
altcoins), have different functions or specifications. Cryptocurrencies are built on
complex algorithms, operating on the basis of blockchain data technology.
Blockchain is like a giant public ledger listing all transactions validated by a
globally connected computer system. As of March 2022, there are over 18 000
cryptocurrencies in existence (Coinmarketcap 2022).
 17

3.3 Common cryptocurrencies

In recent years, cryptocurrency investment has been a topic of much discussion

on financial forums and social platforms. With the rapid development of the
cryptocurrency market, more and more different types of cryptocurrencies have
been created.

3.3.1 Bitcoin ( BTC)

Bitcoin is a cryptocurrency that was proposed in 2008 and enjoyed a lot of

success throughout its formation and development stages. Bitcoin (abbreviated
as BTC) is known as a decentralised digital currency, meaning it is based on
blockchain technology and does not depend on intermediaries. This means that
Bitcoin is not officially protected or recognized by governments in some
countries around the world. Bitcoin is encrypted in the form of an open source
code for direct exchange by internet-connected devices. The transactions are
peer-to-peer (Nakamoto 2008).

Peers are computer systems connected via the internet in a peer-to-peer

network. The buying/selling takes place directly between the sender and the
receiver on the internet without going through a server in the process and
without anyone participating as an intermediary. Satoshi Nakamoto is the name
that comes up the most when someone asks who created Bitcoin. Currently,
there is no proof that Satoshi is a person or an organisation. Bitcoin has 14
years of existing and development. As of May 5, 2022, the price of 1 BTC was
$39,630.88 (Coinmarketcap 2022).
 18

Figure 3. Bitcoin Price from 2015 to 2022 ( Coinmarketcap 2022)

According to Figure 3, we can see the spectacular growth momentum of BTC.

After the correction from $10,000 to below $4,000 (March 2020), Bitcoin started
a strong bull cycle and reached an ATH at $69,000 (Coinmarketcap 2021).
Bitcoin is a prime example of an open blockchain. It does not require
government clearance, and anybody can join or leave the public Bitcoin network
at any moment (Lewis, McPartland & Ranjan 2017).

3.3.2 Ethereum ( ETH)

Ethereum, abbreviated as ETH, is the second largest cryptocurrency after

Bitcoin. It's a decentralized blockchain platform that creates a peer-to-peer
network for securely executing and verifying application scripts (also known as
smart contracts). It is similar to a smartphone operating system on which
software apps may be developed. (EY 2022, 4.)

In June 2015, the first block of Ethereum was successfully mined, marking the
official formation of the Ethereum Blockchain. In 2016, Ethereum crashed hard
fork, resulted in the division of Ethereum into: Ethereum and Ethereum Classic.
In 2016, an Ethereum blockchain program was hacked and stolen about 3.6
million ether (ETH) – worth about $50 million at the time (Reynolds 2021).
 19

Ethereum's core developers elected to undertake a hard fork in order to remove

the hack from the ledger and refund the assets to their rightful owners. Hard
forks are significant modifications to blockchain algorithms and coins (Juneja
2022).

Ethereum not only acts as a cryptocurrency and store of value, but the
decentralized Ethereum network can also create and run applications, smart
contracts, and other transactions on the Blockchain network. The history of all
these smart contracts is stored in the Ethereum blockchain. The number of
Ethereum tokens is unlimited. According to a May 5, 2022 report, one ETH is
currently priced at $2,945.94 (Coinmarketcap 2022).

Figure 4. Ethereum price from 2016 to 2022 (Coinmarketcap 2022).

ETH also shares a similar price trend to Bitcoin because ETH is also affected by
Bitcoin's price swings. Overall, the ETH price is on a strong upward trend.
 20

3.3.3 Tether ( USDT)

The Omni layer protocol is used to issue USDT (Tether coin) on the Bitcoin
Blockchain. Each USDT unit has a reserve of 1 USD and can also be redeemed
on the Tether platform. USDT is operated, spent and stored similarly to all other
virtual currencies. All these properties make it ideal for users to transact
currencies between different countries, replacing current insecure wallet
transactions and audits. USDT in circulation will always equal USD in Tether
Limited. To ensure transparency about the amount in the account, Tether
Limited has published the bank balance at the Transparency website. Auditors
will regularly confirm and update this report. Tether is a stable cryptocurrency,
the price of which does not fluctuate much compared to other cryptocurrencies.

Figure 5. USDT Price from 2016 to 2022 (Coinmarketcap 2022).

Updated on May 5, 2022, one USDT was worth 1 dollar. USDT is a stable coin,
USDT price is always around 1 dollar. Because of this feature, investors often
use USDT for the purpose of converting money or as an intermediary to trade
other coins.
 21

3.3.4 Dogecoin ( DOGE)

Dogecoin (code: DOGE) is a decentralized cryptocurrency based on the source

code of Litecoin. Dogecoin uses the dog face Shiba Inu (temporarily called the
Doge meme) as its official name and logo. At first, many people thought this
was just a joke from the founder when the value for money was very low.
However, Dogecoin became a viral craze and increased in value many times
over. Dogecoin has no limit on the number of coins issued. At this point, the
number has risen to over 129 billion units. DOGE was born solely for the
purpose of decentralization and development based on the foundation of
Litecoin.

Figure 6. Dogecoin price from 2015 to 2022 (Coinmarketcap 2022)

Dogecoin received huge support from Elon Musk, founder of Tesla. The value
of this coin is greatly influenced by Elon Musk's Tweets. Every one of his events
or Tweets can cause the coin price to increase rapidly. "The total transaction
flow that you do with Dogecoin in transactions per day has a much higher
potential than Bitcoin" (Musk 2021). Just a short Twitter sentence, Elon Musk
was able to change the direction of the coin's price. This shows that
cryptocurrencies are heavily dependent on the "sharks" - the big investors of the
market.
 22

4 Advantages and disadvantages of using cryptocurrency

4.1 SWOT Analysis

Cryptocurrencies have certain advantages and disadvantages in their use. A

SWOT analysis will consider more about the strengths, weaknesses,
opportunities and threats of cryptocurrencies.
 23

This is a preliminary analysis of the strengths, weaknesses, opportunities and

challenges in using cryptocurrency. Based on the above table, it can be seen
that cryptocurrencies have many weaknesses in terms of security. The market
is developing, so there are still many weaknesses and challenges for
cryptocurrencies. For a more detailed analysis of the disadvantages and
benefits, sections 4.2 and 4.3, which provide more rigorous arguments.

4.2 Advantages

Cryptocurrencies are designed to evade control by regulators or third parties,

reducing transaction costs. In recent years, when buying something, paying with
cryptocurrency has also become more convenient. One of the other highlights
of cryptocurrencies is convenience: the ease of storage and the ease of use.
Since cryptocurrencies are digital currencies, all funds are kept in an application
or hardware wallet, or even stored online. Cryptocurrencies will make it easier
to send money between two people without the use of a third party (Nakamoto
2008, 1 -3).

Transaction fees are not exorbitant, and money will be transferred directly from
one person to another without going through any intermediaries. In addition, the
transaction costs are extremely low. Compared with transactions through
banks, which have high conversion fees and long transaction processing times,
cryptocurrencies have a distinct advantage. Regular cryptocurrency
transactions are processed extremely quickly. The security of these
 24

transactions is also quite high because all information about the trader will be
kept confidential in an anonymous form.

Cryptocurrencies are a tool to eliminate inflation. Satoshi Nakamoto (2008), the

creator of Bitcoin, set the top limit at exactly 21 million. Therefore, Bitcoin will
not see the phenomenon of mass cloning. If the fiat currency of countries is
issued too much, surpassing the value of manufactured goods, its
consequences are inflation or currency devaluation. Cryptocurrencies are
issued based on algorithms and are pre-programmed with limited supply, so it
can reduce inflation. One advantage of cryptocurrencies over fiat money is that
they cannot be counterfeited. Cryptocurrencies use blockchain technology in
combination with many other consensus mechanisms integrated in algorithms
to build a complete protocol.

All transactions and information about cryptocurrencies are public on the

blockchain. No individual or organization can interfere and govern bitcoin
because its protocol is encrypted and built on a decentralized network. This is
precisely the reason for the transparency of the Bitcoin cryptocurrency.

4.3 Disadvantages

Cryptocurrencies are always a hot topic of discussion,so the pros and cons of
using cryptocurrencies have also been analyzed by many experts and
investors. In some countries, the use of cryptocurrencies is encouraged by the
government, while in others the use of cryptocurrencies is prohibited and
viewed as illegal. It is these legal questions that have caused cryptocurrencies
to lose the trust of many investors.

Cryptocurrencies operate under the decentralized mechanism of Blockchain,

which means that transactions can be carried out without the existence of a
central bank coordinating their activities. It is because of this decentralization
that there is no central bank to mediate all transactions and no centralized party
or government to enforce its value. The value of a coin is determined by the
 25

value investors place on it. This makes the price highly volatile; the price can go
up and it can also drop rapidly and unpredictably. Since there is no government
regulation, the price of a cryptocurrency is so fragile that it can depreciate
completely if something goes wrong.

The risk of data loss and hacker attacks is quite high. Cryptocurrencies are held
in digital wallets protected by digital passwords. When losing the digital
password, the risk of losing the wallet is very high. Not only individual accounts
but also major exchanges can be hacked by hackers (Redman 2019).

All activities related to cryptocurrency trading can be anonymous. So this is a

loophole for criminals to operate. The legality of using virtual currency is also
important as it can cause trouble for investors. In countries with a ban on
cryptocurrencies, engaging in trading these currencies despite the ban can also
face related legal problems. The cryptocurrency market is relatively new
compared to the traditional markets. This means that the market is still in the
development phase. Market stability has not been established. The change of
the market in the future is also affected by many objective and subjective
reasons.

5 Regulation

5.1 Acceptance and legal status

Cryptocurrencies are widely traded in many countries around the world, with a
focus on developed regions such as North America, Eastern Europe, and Asia.
According to CoinMarketCap, the value of all the bitcoins in the world was over
$1.65 trillion as of May 5, 2022 (Coinmarketcap 2022). The total value of the
cryptocurrency market has reached amazing milestones. Out of all
cryptocurrencies today, Bitcoin has the highest market capitalization. This is
also very understandable since Bitcoin was the first cryptocurrency to be
created and already has a strong place in the cryptocurrency rankings. Bitcoin’s
 26

value is currently 41.52% of the cryptocurrency market value (Coinmarketcap

2022). Each country has a different reaction to the development of virtual
currency. Currently, Bitcoin is not officially recognized as a currency in most
countries around the globe. The character of cryptocurrencies does not match
the way traditional markets work. The International Monetary Fund (IMF) is
concerned that cryptocurrencies like Bitcoin can pose a lot of risks to both
investors and the economy. According to the IMF, national regulators should
work to have common rules globally, strengthen cross-border surveillance, and
as this is a new field, push for data standardization. Because of its extremely
fluctuating value, Bitcoin does not work well as a daily transactional medium of
exchange (Prasad 2022). To date, price volatility has remained limited inside
crypto-asset markets, with no overtaking or threat to the robustness of broader
financial markets and infrastructures. Financial stability risks may arise as
crypto-assets are increasingly integrated with the broader financial system,
especially without a proper regulatory framework and oversight. The
development of digital cryptocurrencies is an inevitable trend. The current
cryptocurrency market still has many limitations in terms of both system
structure and security policies. Improvement and development are necessary to
build a safe and secure market. Whether accepting it or not, countries still have
to come up with management methods to ensure the stability of the financial -
monetary system and the interests of the people.

The management and use of electronic money as a means of payment depends

on the laws of different countries around the world. The first country to legalize
Bitcoin was El Salvador. El Salvador has made Bitcoin legal tender, allowing it
to be used as a medium of exchange for goods and services (World Economic
Forum 2021). The country's adoption of Bitcoin has made a particularly big
impression on the world. This impression mainly comes from the fact that this is
a small country that was the first to accept Bitcoin. Public opinion from other
countries will be both negative and positive. According to El Salvador's
President Nayib Bukele, accepting Bitcoin will make it easier for their citizens
abroad to send money back home.
 27

There are countries that are at the forefront of information technology in the
world; they neither accept cryptocurrency nor ban it. They only put in place
policies to collect taxes and measures to monitor and reduce the possibility of
smuggling or money laundering. There is a group of countries that reject
cryptocurrencies although they do not ban cryptocurrency transactions. These
governments have an unfriendly view of this currency. Finally, there are
countries that completely ban the use and trading of cryptocurrencies. The level
of bans in these countries also varies and depends on many factors. The
Library of Congress (LOC) published a report "Regulation of Cryptocurrency
Around the World" conducted in 2018. It analyzes regulations of more than 130
countries around the world regarding cryptocurrencies (LOC 2018). The
document was subsequently updated in November 2021. Both the 2018 and
2021 data sections were used for analysis in this chapter. A clear change in
three years can be seen from the data.

Figure 7. Legal Status of Cryptocurrencies ( Law Library of Congress 2018).

Based on the research of Law Library of Congress, Figure 7 has been compiled
showing the countries that ban and implicitly ban cryptocurrencies. Countries
that are completely banned include Algeria, Egypt, Bolivia, Iraq, Morocco,
 28

Nepal, Pakistan, and the United Arab Emirates. In countries that completely ban
the transactions and use of cryptocurrencies, crypto-related activities are
considered illegal. All crypto activities are tightened and banned completely.
According to studies, according to these countries, the ban is to maximize the
protection of the national currency and the interests of investors. Besides the
countries that have a complete ban, there are still countries that only have a
tacit ban. The implicit bans are put in place to limit cryptocurrency-related
transactions at exchanges, banks and other financial institutions. In addition to 8
countries that completely ban, there are 15 countries that have implicit bans
(Law Library of Congress 2018).

Figure 8. Legal Status of Cryptocurrencies (Taylor 2021).

According to Figure 8, there are a number of countries that have changed from
complete bans to implicit bans, such as Algeria, Bolivia and Pakistan. There are
some countries which changed from implicit bans to complete bans of
cryptocurrencies. In the 2018 report, only 15 countries implemented implicit
bans, but in 2021 there were 42 countries. These countries have stepped up
activities to limit the ability to trade cryptocurrencies (Law Library of Congress
2021). According to the statistics of the Law Library of Congress, the number of
 29

countries with implicit bans has increased significantly in just three years from
2018 to 2021

China restricted financial institutions from trading cryptocurrencies and

prohibited all cryptocurrency mining in the nation. The Chinese Government is
particularly concerned about the environmental impact of cryptocurrency
mining, as well as people who use digital currencies for fraud and money
laundering (Brokee 2021). The issuance of a complete ban on cryptocurrencies
by China was considered an important event at the time, as China is one of the
largest cryptocurrency markets in the world. China's ban dealt a heavy blow to
investors and sparked global interest in cryptocurrencies. The Chinese
Government believes that the virtual currency business has contributed to an
increase in gambling, fraud and other illegal activities. The ban on
cryptocurrencies is imperative to maintain social stability and national security
(Brokee 2021).

5.2 Regulatory Framework

The development of blockchain and cryptocurrencies is necessary, because it is

completely in line with the change of times and technological improvement. It is
because not all countries in the world have negative thoughts about
cryptocurrencies and their application in economic transactions and social
activities. There are a number of countries that have not officially legalized
cryptocurrencies as a currency, but they still allow citizens to participate in
cryptocurrency transactions. Separate legal frameworks for cryptocurrencies
have been developed and adjusted by countries to suit the actual situation.
According to the U.S. Library of Congress (2018), these frameworks include tax,
anti-money laundering and counter-terrorism financing laws.

Cryptocurrency transactions are profitable for investors; therefore, tax laws

were enacted. The Internal Revenue Service (IRS) in the United States has
classified cryptocurrencies as property rather than foreign money for tax
 30

reasons. If it is utilized in a transaction, its worth is evaluated at its fair market

value in US dollars at the time of the transaction. The difference in value
between when it was bought and when it is spent is subject to capital gains tax
(IRS 2014, 5-7). Over the next few years, tax policy and financial legislation
around cryptocurrencies will undoubtedly change. Even if there is a capital loss,
all cryptocurrency traders must declare each trade or sale as a taxable event.
Tax laws will depend on the regulations of each government.

Anti-Money Laundering and Anti-Terrorism Financing laws have also received

exclusive attention. Cryptocurrencies have the advantage of being easily
exchangeable on a global scale. Because it operated by blockchain and through
peer-to-peer transactions. Blockchain is a decentralized, unchangeable
database that allows businesses to record transactions and track assets without
going via a central authority (IBM 2022). Therefore, it has become an effective
channel for criminals to take advantage of legal loopholes to carry out illegal
acts. Criminals can easily convert funds obtained through illegal activities into
"clean" money or channel terrorist financing through the sale and exchange of
virtual currencies in different countries. As a result, some governments have
incorporated anti-money laundering and anti-terrorist funding legislation into
their cryptocurrency regulatory structure.

Anti-money laundering (AML) refers to a system of rules, regulations, and

procedures aimed at detecting attempts to mask unlawful transfers as legitimate
earnings (Kenton 2022). The ways that criminal organizations take advantage of
vulnerabilities to carry out money laundering activities include the following
steps. First, criminals will introduce this illegal money into the financial system
by buying cryptocurrency. They will then trade with various accounts so that the
money is moved around to create confusion. In this way, they were able to
legitimize the flow of money, switching to "clean money". This action facilitates
crimes such as drug trafficking and terrorism. This directly affects the global
economy. The US, UK and Europe are focusing heavily on AML enforcement,
targeting financial institutions and high-growth sectors such as cryptocurrencies
and exchanges. AML will be a big focus for law enforcement and law
 31

enforcement agencies over the next few years. (Roberts, Grieve, Chandhok &
Glaser 2021.)

Terrorist financing is the act of mobilizing and supporting money and properties
in any form for terrorist organizations or individuals. Countries must adhere to
the standards for money laundering prevention and combat, as well as terrorism
and terrorist financing prevention and combat.

An effective framework must prevent, detect and punish illegal acts such as
deliberately driving illegal money into the financial system, financing terrorism. A
person commits the crime of financing terrorism "whenever that person
distributes or collects funds with the aim or knowledge that they will be used, in
whole or in part, to carry out" an offense within the scope of the Convention by
any means, directly or unfairly and deliberately (UN Office on Drugs and Crime
1999).
 32

Figure 9. Regulatory Framework for Cryptocurrencies (Law Library of Congress

2018).

According to the Law Library of Congress report ( 2018), the list of countries
with tax laws and anti-money laundering/terrorist financing laws has been fully
disclosed. Most countries in Europe applied these laws to their crypto-related
regulatory frameworks. As shown in Figure 9, the countries that use both laws
include Australia, Canada, Denmark, Switzerland and Japan. The research also
cites 13 nations that have enacted anti-money laundering and anti-terrorist
funding legislation to regulate cryptocurrency use. There are 16 countries that
have adopted tax laws for cryptocurrencies in 2018. In general, the application
of these laws into the legal framework is the right decision for the above
countries, which not only helps them to limit legal loopholes but also protects
national security. (Law Library of Congress 2018.)

5.3 The adoption of crytocurrency – Case: Vietnam

Vietnam is a country that does not accept cryptocurrencies as fiat money.

According to Official Letter 5747/NHNN-PC, the state affirmed that
cryptocurrency is not a money nor a legal means of payment in Vietnam.
Issuing, supplying, and utilizing virtual currency in general, and Bitcoin and
Litecoin in particular, as a currency or means of payment, is illegal (State Bank
of Vietnam 2017).

Cryptocurrencies started appearing in Vietnam. The Vietnamese Gorvernment

does not have the official legal framework for cryptocurrency. In 2017, FPT
University announced that it would accept foreign students to pay tuition fees in
Bitcoin (VnExpress 2017). This created a strong wave of talk about
cryptocurrencies and Bitcoin. However, this announcement of FPT University
 33

went against the laws that the government had mentioned. Therefore, this
notice of FPT has been cancelled. The government has responded by
introducing sanctions for illegal declaration, issuance and provision of means of
payment that will be administratively sanctioned.

Due to the strong development of cryptocurrencies, there are many

cryptocurrency trading activities occurring everyday. The anonymous
transactions are difficult for the goverment to check if there are any illegal
activities such as money laundering, tax evasion, etc. Regarding the
effectiveness of monetary policy, Vietnam’s legal system has implemented its
own management policies.

Although the Vietnamese Government does not accept cryptocurrency as an

official currency or means of payment, the number of Vietnamese people
participating in investing in this market is very large. Despite the state's
recommendations on risks to the cryptocurrency market, many investors are still
reluctant to participate.
 34

Figure 10. Global Cryptocurrency Adoption Index (Chainalysis 2021).

Based on Figure 10, we can see that Vietnam tops the list of countries where
people want to accept cryptocurrencies the most out of 154 countries
(Chainalysis 2021), even though the government does not accept them. The
above ranking is made using the following values:

(1)On-chaincryptocurrencyvaluereceived

(2)On-chainretailvaluetransferred

(3)Peer-to-peer(P2P)exchangetradevolume

The results obtained from these data are truly astounding. Vietnam has an
extremely high number of crypto transactions. Peer-to-peer platform is driving
and creating momentum in emerging markets, including for all Vietnamese
people with a new awareness of the cryptocurrency market and starting to
invest. This is a good sign, but it is also risky because the knowledge base
about cryptocurrencies is not yet widespread in Vietnam. Investment waves are
mostly "imitation" without any necessary knowledge. The state needs to soon
 35

complete the legal framework on cryptocurrencies, strengthen the management,

and strictly control related cryptocurrency trading activities.

6 Comparision between cryptocurrencies and stock markets

A comparison between cryptocurrencies and a long-established investment

such as stocks is a good way to clarify the characteristics of this emerging
crypto market.
36
 37

Table 2 provides a simple comparison of the characteristics of the

cryptocurrency and stock markets. This comparison seems disproportionate
because securities are an investment type recognized and regulated by an
authority, while cryptocurrencies are a relatively new market and have not yet
received regulatory approval. However, in general, these two markets also have
similarities and differences to analyze and compare.

7 The impact of cryptocurrency

7.1 Price crashes of Bitcoin

Bitcoin is the largest cryptocurrency at the moment, so the rise and fall of this
cryptocurrency will affect the trends of others. Bitcoin's sudden price spikes and
drops have had a huge impact on cryptocurrency markets and cryptocurrency
investors. The worldwide economy was embroiled in a recession after the global
economic crisis erupted in 2008-2009. Bitcoin, based on Blockchain block data
technology, was born in that setting, marking a watershed moment in human
financial technology. At that time, the price of Bitcoin only reached 0.00076
USD on October 5, 2009 (Coinmarketcap 2022). The Bitcoin price has reached
$39,655.10 on May 5, 2022 ( Coinbase 2022) During its more than 10 years of
 38

development, Bitcoin had unexpected price drops, although the market rallied
after that but still left a significant mark.

Figure 11. Price History of Bitcoin (Jiang 2022)

Bitcoin's price movement is evident in Figure 11. An unstable growth has

followed throughout Bitcoin's price correction. Bitcoin rallied again on April 13,
2011, from $1 to a peak of 29.60, up 2,960% within three months. In 2012,
there was a heavy meltdown in the crypto market: the price suddenly dropped
nearly 50%. After that, the market recovered and there were continuous ups
and downs, but mostly in the direction of growth. Bitcoin peaked on 10
November 2021, at a price of $68,990.90 1 BTC, which is the highest peak
recorded in history. Currently, the Bitcoin price has dropped almost 50% from its
peak. (Coinmarketcap 2022.)

These data are taken from the Bitcoin price chart at Coinmarketcap.com during
development. Over the past 10 years, Bitcoin has had four rapid price drops
(more than 80% down from its peak). The first major drop in 2011 was also the
 39

most severe drop in Bitcoin's history (-93.8%). The reason for this price drop is
because a user claimed to have stolen 25,000 Bitcoins. The coin dropped
sharply and bottomed out at $2, although it was previously priced at $32. This
was a really deep drop in prices that lasted until 2013. After breaking out of the
bubble in November 2011, Bitcoin welcomed two strong rallies to $259 on April
10, 2013. Then there was a drop to $50 but after only a few months, the Bitcoin
price pushed to a new high of $1,163 on November 30, 2013. This rally is due
to the power of the media that has favored a lot of news about crypto. Once a
peak is reached, a bearish wave is bound to appear. The wave of declines this
time extended to the bottom in 2015. It was not until 2017 that the Bitcoin boom
began. This was a brilliant milestone for Bitcoin when it peaked at $19,666. This
was followed by a bubble burst when the Bitcoin price returned to $3,220
(83.6% decrease). After each peak, there will be a decline. This is how the
market works. Each burst of the Bitcoin bubble has left small investors in fear.
In addition, unexpected increases and decreases also affect the cryptocurrency
market.

7.2 Cryptocurrrency affects financial markets

The analysis of financial markets has been analyzed in Section 2.1.

Cryptocurrencies are also participants in financial markets, so issues related to
cryptocurrencies also impact the financial markets. As analyzed in previous
chapters on the benefits and disadvantages of cryptocurency, the appearance
of Bitcoin has caused many concerns and risks for users. Bitcoin being traded
on the market includes coins bought from exchanges and mined coins. Bitcoin
"mining" has started to increase in America. Since China announced a ban on
cryptocurrencies, bitcoin mining in China has gradually shifted to the US. As of
April 2021, the United States accounted for over 17 percent of total of all bitcoin
miners in the globe, up 151 percent from September 2020 (Sigalos 2021).
However, Bitcoin mining is harmful to the environment, consumes a lot of
electrical energy and has an impact on climate change (Goodkind, Jones &
 40

Berren 2020). In recent years, Bitcoin miners have also used more
sophisticated machines and equipment.

Transactions in cryptocurrencies are highly anonymous, so criminals have

taken advantage of them to carry out illegal acts, drug trafficking, tax evasion
and illegal property payments. These illegal activities upset financial markets
that already have many problems to deal with. However, thanks to the
decentralized nature of cryptocurrencies, it received more attention when
Russia started attacking Ukraine. The European Union (EU), the United States,
the United Kingdom and Canada have issued deviations of sanctions against
Russia. Russian banks will be "disconnected" from SWIFT, the global payment
information system used by banks to conduct cross-border monetary
transactions (Likos 2022). The presence of cryptocurrencies has helped Russia
solve the problem at hand: Russia is still able to transact through
cryptocurrencies. During the war, it has been difficult to withdraw money at
ATMs, so electronic money has won favor to help people easily convert money.
This is a positive impact from cryptocurrencies on people's lives.

Lessons learned from previous monetary systems will be the foundation for
cryptocurrency development to officially receive recognition. Cryptocurrencies
have been around in the financial markets for more than a decade; they have
proven their role in the financial markets. Crypto-assets are already part of the
financial markets. Their excessive price volatility could jeopardize financial
stability, especially in countries where cryptocurrency use is widespread. As a
result, it's past time to create a worldwide regulatory framework that would
guide national legislation and oversight while also addressing the crypto
ecosystem's financial stability concerns (Adrian, Iyer & Qureshi 2022).

Cryptocurrencies and markets have an interlinked relationship from two sides,

so both sides can have an impact on each other. This means that positive or
negative market news can also affect cryptocurrency prices. Investor sentiment
and news are the factors driving the impacts of cryptocurrencies.
 41

8 The illegal activities related to cryptocurrencies

8.1 Ponzi schemes

A Ponzi scheme is an investment scam in which existing investors are granted

fictitious profits using the money of new investors. Organizers of Ponzi schemes
may entice new investors by promising to engage in opportunities that promise
huge returns with little or no risk (The U.S. Securities and Exchange
Commission 2022,1). Ponzi schemes are named after Charles Ponzi – an
Italian scammer living in North America who became very famous after coming
up with this asset scam model.

Figure 12. How Ponzi schemes work ( Gurneet 2020).

A cryptocurrency Ponzi scheme functions in the same way that a regular Ponzi
scam does. To entice investors, a fake advanced rate of return is used, many
new investors will be drawn into the scam. After that, the scammers will
disappear from the market. Scammers convince people to invest money by
promising high returns. Investors start by encouraging their friends and
 42

colleagues to invest as well. The most suitable target for this model is
community groups (Moneysmart 2022) because crowd psychology affects a lot.

8.2 Money laundering

Money laundering is a way that criminals convert illegal money (dirty money)
into legal money (clean money). Through illegal activities, criminals can earn a
huge amount of "dirty money". By concealing the illegal origin of this money,
criminals enjoy these profits without jeopardizing their source (the financial
Action Task Force 2022).

Cryptocurrencies are increasingly being used in money laundering operations,

and numerous criminal networks used them as a payment medium during the
COVID-19 pandemic (Europol 2021). Money laundering networks provide
services to other criminal networks, such as the purchase or trading of
cryptocurrencies, the legalization of criminal assets, and the ultimate cash out of
criminals' accounts (Europol 2021, 12).

Criminals can perform extremely sophisticated behavior: they process bitcoins

concealing the source, then split the transfer into smaller payments that are
transacted at once. This practice becomes legalized after they exchange assets
operating through purchasing intermediaries on popular websites.

Money laundering through Bitcoin transactions is becoming more and more

common. In previous years, there have been major money laundering cases
such as the Chinese Bitcoin Exchange OKCoin. During the investigation of the
fraud, the law enforcement agencies recovered most of the laundered funds,
and OKCoin was responsible for compensating 40% of the total amount that
investors and related parties suffered. (Gautham 2016.)

In the US, Bitcoin BitInstan was also involved in money laundering for the
company's customers. The exchange's CEO helped clients sell over $1 million
 43

in bitcoins used in drug purchases (Pagliery 2014). Cases related to money

laundering will incur very heavy legal penalties because it affects not only the
economy but also national security.

8.3 Crypto hack

Many hackers take advantage of the anonymity of cryptocurrency transactions

to infiltrate exchanges and steal investors' wallets. Virtual currency exchange
attacks not only investors' assets but also reduce the reputation of businesses.
Hackers perform illegal acts for themselves to appropriate other people's
property. Most of the incoming virtual currency exchanges do not guarantee
100% security against hackers. Hackers can attack exchanges or other online
platforms to steal user information and then get that information to break into
their accounts on the exchange. Cybersecurity is very important: it keeps
exchanges and investors protected from hackers.

The Ronin hack was one of the biggest crypto thefts ever. Thousands of people
were affected by this attack. Ronin Network, a platform that powers the popular
game Axie Infinity, was hacked, and the thieves took cryptocurrency valued
over $615 million (Tidy 2022). This is just the latest in a string of mass crypto
thefts that have occurred. According to the statistics of Coinmarketcap 2022,
many hacks cause unfortunate financial losses. An example is the Poly Network
Hack (August 10, 2021) which caused a loss of 610 million USD; Hack
Coincheck (January 26, 2018) with a loss of 534 million USD; Hack the Mt. Gox
from late 2011 to February 2014 with a total lost asset value of $610 million;
Hack KuCoin (September 25, 2020) with a lost asset value of $610 million.
There are still attacks from hackers with a total value of billions of dollars.
(Kartsey 2021.) Measures to ensure security and enhance network security are
a priority to combat hackers in the cryptocurrency markets.
 44

9 Conclusion

The theoretical part of the thesis mentioned key points focused on analyzing the
historical factors of the subject. Theories on the monetary system, Gold
Standard, Bretton Woods, SWIFT were briefly explained, including the main
ideas and related historical issues. History is not about memorizing information,
but about following and evaluating arguments and synthesizing them to draw
usable conclusions. The dilemma will be illuminated by an examination of
historical causality - how change occurs in society and how individuals think
(History Standards 1996). The author uses the analysis of the market history to
better understand the important milestones of the market.

The focus of the thesis is still on cryptocurrencies and their effects on financial
markets. The idea and issuance of cryptocurrency is an inevitable creation
under the push of a science and technology platform. The formation and
development of cryptocurrencies are due to the needs of the market, the key
factor in this market is people. People want to find a new form of money, a new
playing field. The fact that Satoshi Nakamoto created the whitepaper for
cryptocurrencies, and applied blockchain to Bitcoin is a remarkable milestone
for the information technology industry. Cryptocurrencies are still being
entangled in many doubts about the level of risk and the legitimacy, as well as
the ability to develop.

Humans started from primitive times with basic survival skills after going
through evolution and scientific and technological revolutions. Now, people are
reaching the heights of science and technology. The fourth science and
technology revolution emphasizes achievements in artificial intelligence,
machine learning, biotechnology, blockchain. The superiority of Bitcoin is based
on its unique electronic technical characteristics. The comparison of the benefits
and disadvantages of cryptocurrencies also show the strengths and
weaknesses that need to be overcome. An object always has two opposite
sides parallel to each other. Both good and bad sides of the subject need to be
 45

focused on and carefully considered. Cryptocurrency is also a much discussed

topic regarding the potential for development, mining issues related to the
environment, security capabilities and privacy. The worldwide cryptocurrency
market is anticipated to grow by 12.8 percent between 2021 and 2030, from
$1490 million to $4940 million in 2030 (Goswami, Borasi & Kumar 2021, 5). The
market's development opportunities are predicted to increase in the future.
However, the disadvantages of using cryptocurrencies are also highlighted in
many reports from some financial organizations. The key point to these
disadvantages is the increasing number of countries that have banned and
tacitly banned cryptocurrencies.

The regulations of each country on cryptocurrencies are different. Each country

has its view and orientation. In general, the ultimate goal is still to develop the
national economy and ensure national sovereignty. Regulations are considered
and built to help the management become tight and minimize loopholes.
Acceptance or disapproval of cryptocurrencies depends on the strategy of the
government. If the development of cryptocurrencies can benefit the people and
the country, it will be accepted, except in cases of kleptocracy (Meriam Webster
2022), when a certain state or government intentionally takes advantage of
cryptocurrencies to steal all the people's resources. This is condemnable.

It seems that the majority of investors in cryptocurrencies do not have a good

understanding of the financial markets. Investment decisions are mainly
influenced by the psychology of the crowd. Not doing any research before
entering this market is extremely dangerous. The pitfalls and investment risks
are countless; even a small mistake can cause investors to lose money. To
prepare before starting to enter this market, new investors must grasp at least
the knowledge of cryptocurrencies and know how to classify valuable and
unvaluable coins.

Jumping into the market without any knowledge is like jumping into the deep
sea without knowing how to swim. The lucrative bait often comes with traps in
the back. Cryptocurrency news articles or influencer praises will make one feel
that the crypto market is really simple and amazing. The reality is however
 46

always more difficult than what marketing departments want people to think. In
addition to cryptocurrencies, there are many other types of investments such as
gold, stocks, real estate, forest ownership, etc. Putting all these investment
models on the scale for comparison can help to identify the best financial
investment tool.

Each crisis or bubble will bring certain fluctuations to the market. Volatility is
inevitable and does not necessarily lead to a complete loss of market value.
Risks come with opportunities. When volatility occurs, there will be two cases:
the risk of losing an investment or the possibility of increasing price. Deciding to
participate in any market requires thorough research. No prediction will be
completely accurate.

The last but essential thing when learning about cryptocurrencies and limiting
the risks is the illegal activities associated with the use of cryptocurrencies.
Criminals will mix and use cryptocurrency as a tool to carry out illegal activities
such as drug sales, terrorist financing, money laundering, data theft, etc.
Cryptocurrencies make this market quite fragile and vulnerable. The thing to do
for each individual participating in the investment is to be calm and sober before
flowery advertisements and to pay attention to the security of personal data. At
the state level, laws on tax administration, crime prevention, and cyber security
need to be carefully discussed to build the strictest legal framework.

Personal comments:

According to the research and experience of participating in the cryptocurrency

market for several years, it is found that cryptocurrencies are fully capable of
developing and receiving acceptance from many countries. However, the ability
to replace fiat money is very difficult, even impossible, because currently,
cryptocurrencies have not built up stability in value. Investing is not gambling,
so following the crowd mentality is a failure. The cryptocurrency markets are too
new to be compared to stocks - an investment type that has been present since
1661. Whether participating in any investment, acumen in thinking and patience
will be the key to success. If one uses some spare money to invest in
 47

cryptocurrency and wait 5-10 years, it is not necessarily a bad decision. This is
not financial advice, it is solely based on personal opinion.
 48

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 Appendix 1 1(1)

Appendix

Appendix1:EvolutionoftheInternationalMoneytarySystem

Appendix2:Top8currenciesinmarket07.05.2022(Coinbase2022).
Liite 2 1(1)