Myassignment.live is not sponsored or endorsed by this college or university
Bitcoin is the cryptocurrency in a form of the electronic cash. Further this currency is decentralized and in digital form without the interference of central bank or the single administrator. It can be sent from user to user through peer to peer bitcoin network for blockchain without the requirements of intermediaries (Dyhrberg, 2016). Bitcoinis powered through the blockchain technology. Purpose of the essay is to focus on whether bitcoin is asset and if yes what type of asset it is. AASB submitted discussion paper in context of digital currencies to IASB and ASBJ (accounting standards board of Japan) issued exposure draft for the public comment in context of virtual currencies (Ey.com, 2019). Apart from that, IASB discussed certain specific features for transactions including digital currencies during the meeting during 2018 January. In this essay bitcoin will be discussed in brief. This structure will highlight dealing with bitcoin that requires detailed understanding of technical aspects in addition to relevant accounting concepts. Analysis for transactional data for bitcoinis generally used as the speculative investments and as alternative currency or as exchange medium. However, still bitcoin is small as compared to size of other classes of assets and hence pose immediate risk for financial, economic or monetary stability (Ey.com, 2019).
The literature review will highlight various aspects of bitcoin which in turn will assist to analyse whether bitcoin can be considered as an asset or currency. Further the bitcoin’s statistical properties will be analysed to find that essentially is uncorrelated with the traditional classes of assets like bonds, stocks both under normal scenario as well as during financial turmoil. Bitcoin is among the 1stcryptocurrencies those were fostered at the level of global financial crises through libertarian community of government and the central authorities (Forbes.com, 2019). Though it generated various limitations, it remains leading cryptocurrency by the market capitalization. Under BitcoinBlockchain it is possible for anyone to view ledger that records the ownership of the bitcoin and transact on it (Sapirshtein, Sompolinsky& Zohar, 2016).Hence, privacy is achieved through pseudonymitythat is lack of correlation among bitcoin source and identifiable legal or the natural person. Anyone with adequate computing power may participate in validation of transaction through utilising any computer for solving multifaceted cryptographic equations. Solution of equation allows blocks of the transactions to add to chain in exchange of newly minded bitcoins (Mbs.edu, 2019). It is not required to have any mutual trust or any central authority for enforcing rules and maintaining golden source of the transactions. Each of the computer maintains or has the access over full record for every transactions since the inception of blockchain. Whenever any transfer of bitcoin is made, the public record is utilised for verifying availability of the funds and new transactions is thereby encoded into consensus ledger. Hence, ledger is virtually immutable and there is negligible risk of manipulation or fraud in transaction of participant to participant on blockchain itself (Urquhart, 2016)
Specifically the bitcoin is designed as the payment system and currency, however, it is notable that in public and distributed permission less ledger this is customary for offering form of on-chain value to incentivize the validation of transaction. Under bitcoinblockchain currently the incentive takes form of the transaction fees along with newly mined bitcoins. While each of the blocks is mined, the miner receives value of bitcoin that is predetermined. However supply for bitcoin is finite actually by design (Andrychowicz, et al., 2014). Once, last bitcoin is being mined, system will switch to the exclusive transaction that is fee based incentives. This is considered as the part of allure of bitcoin to liberatarian crypto community. Regardless the principle, it is crucially notable that the bitcoin is dynamic and not static. Code for reference implementation is open source and is managed as well as updated by the volunteers who are required to achieve the consensus among nodes for adopting the changes. Community for bitcoin is advocated on continuous basis for adopting the same more widely and has made changes in bitcoinblockchain to the end (Crosby, et al., 2016).
If bitcoin is primarily used as the currency for paying in exchange of goods and services, it will contend with fiat currency like US dollar and hence will influence the value and in turn its monetary policy. On the contrary, if it is used primarily for the purpose of investment, it will contend with other assets like government bonds, commodities and bonds among others and eventually will influence financial stability as well as financial system (Glaser, et al., 2014).Over the last few years bitcoin has been on magnificent run and its value increased by 140% in 2016 and later has been increased by additional 49%. This surge in the value has stimulated the boost in value that makes bitcon more credible currency that is the sign of strength for cryptocurrency. However, in wild swings, down as well as up in bitcoin value do not make it more reasonable substitute currency(Forbes.com, 2019).
Whether bitcoin is considered as currency or as asset and whether it has the potential for influencing overall economy is dependent on accomplishment of bitcoin or similar kind of alternatives as compared to the existing currencies as well as financial assets. For getting answer of the quresion that whether bitcoin is the currency or asset, value of bitcoin is to be analysed in context of its financial characteristics as compared to the large numbers of various assets and use of bitcoin that is whether bitcoin is mainly used for investment or as alternative currency to make payment for the services and goods. It has been found that bitcoins are primarily used as the speculative investment owing to ithe high volatility and high value returns (Böhme, et al., 2015). However, returns on bitcoins are not correlated with all the major classes of assets those offer large benefits of diversification. Hence, the lower correlation if constant and stable over time will also imply low risk from the macro perspective. For instance, if the bitcoin reveals bubble like character, noteworthy fall in bitcoin value can be remote event if correlation is nil and hence, other assets will not be impacted. On the contrary, if investment in bitcoin is financed through debt, significant fall in value may result into margin calls which in turn may have impact on other assets (Eyal&Sirer, 2018). Bitcoin is not considered as currency as there are major 2 problems considering bitcoin as currency – (i) value of bitcoin is unstable and (ii) processing its transaction is considerably slow. Most crucial feature of any currency is that it shall have stable store value. This aspect is vital for the developing country’s economy for attracting the investments it requires (Nadarajah& Chu, 2017). Even in the developed nations, stable value for currency is major component for investment as investors expect stream of the future earnings for earning back the investment made by them with some profits. Instability in the currency values means that investors cannot predict value of future earnings accurately (Ciaian, Rajcaniova&Kancs, 2016). This uncertainty makes the investment less valuable which in turn makes less amount of investment. Over past months there is average daily change in bitcoin value of 2%, sometimes up and sometimes down however, mostly up. To compare over same time period, exchange rate among euro and US dollar experienced average daily change of lower than 1% and changed only 3% over entire month (Forbes.com, 2019). On the other hand bitcoin was rising by 49% over past 30 days where the value changed by more than 3% that is more than the changes in the dollar value in entire month. Investors do not want ti invest in such debts or investment that is denominated in such currency whose value can alter by 50% during any month. In addition, another basis feature of currency beyond having stable store value is facilitating the transaction. Main limitation associated with barter is that it is not convenient(Forbes.com, 2019). Further, it is hard making changes and the trader must find 2 people who want exchanging goods and hence, the trade becomes complicated. Currency solves these issues, for instance, groceries can be brought from supermarket without exchanging economic services in supermarket. Owing to this expediency, people shifted from barter to the currencies (Narayanan, et al., 2016).
Further, owing to limitation on the number of transaction that can be completed by within a day, it takes sometimes days for completing even the simple transaction. Resistance in altering the rules from the people who likes anonymity as well as un-traceability of bitcoin mean that the bitcoin cannot be the widely used currency. It is security negates the value in everyday use. Considering the drawbacks, only reason for owing the bitcoins are not using them as currency but to speculate on the asset value of bitcoin or using them to shield the transactions from others (Sasson, et al., 2014). Without the stable value for bitcoin it cannot be termed as currency in true terms. Rather it can be considered as commodity asset that is traded by someone like silver or gold with the expectation that the value of same will be go up and will yield trading profit. Nothing wrong is there in speculation and actions of speculators assists in adding market liquidity and determining asset’s market value (Garay, Kiayias&Leonardos, 2015). However, generally the asset is valued and has underlying uses for instance;money can be invested in gold or jewellery. Bitcoins have no other uses except hiding wealth, concealing illegal transactions along with earning or losing money through trading. From the aspect of popularity limited uses of bitcoin still have value to nontrivial number of people. People shall not expect that bitcoin will become the currency that generally ordinary people use for the ordinary transactions. Hence, bitcoin is not and shall not be considered as currency rather shall be considered as an asset (O'Dwyer & Malone, 2014).
In 2016 December, AASB released a paper named ‘digital currency- a case for standard setting activity’ where AASB examined current literature of IFRS and evaluated whether the digital currencies like bitcoin shall be accounted for as the cash or cash equivalents or financial asset other than cash or inventories or intangible assets. AS per IAS 7 statement of cash flows, digital currencies shall not be accounted for as cash equivalent or cash as the digital currencies like bitcoin lacks the wide acceptance as a measure for exchange and it is not issued by the central bank (Cheah & Fry, 2015). Apart from that, digital currency is not accounted for as financial instrument as in accordance with definition of financial instrument as per IAS 32. However, it satisfies the definition for intangible asset as per IAS 38 intangible assets as digital currency are identifiable non-monetary asset that do not have any physical existence. Para 3 of IAS 38 includes the scope exception for the intangible asset those are held for the purpose of sale under ordinary business course. These kinds of intangibles are accounted for as per IAS 2 inventories and are accounted for at lower of cost or realizable value instead of using the revaluation or cost value as per IAS 38 (Eyal, et al., 2016).
From the above discussions it is recommended that bitcoin is considered as digital currency. Further it is found that bitcoin does not satisfy the conditions attached with the definition of currency as it does not have stable value and hence, it shall not be considered as currency rather it shall be considered as an asset. Further, it shall be recorded as intangible asset as it satisfies the definition of intangible asset as per IAS 38 intangible assets and is identifiable as non-monetary asset that do not have any physical substance.
It is concluded from above that intended purpose of bitcoin is to work as a medium of exchange however it can also be utilised as the asset as well as investment. Further, return properties of bitcoin are quite difficult as compared to traditional assets and hence, offer great benefits of diversification. Analysing the bitcoin ledger it is found that around 1/3rd of bitcoins are held by the investors specifically those who only receive the bitcoins but never send the same to others. However, if the bitcoin acceptance increased in global level significantly, it may have impact on consumer’s as well as producer’s behaviour and as the consequence it may change the relevance of monetary policy.
Andrychowicz, M., Dziembowski, S., Malinowski, D. and Mazurek, L., 2014, May. Secure multiparty computations on bitcoin. In 2014 IEEE Symposium on Security and Privacy (pp. 443-458).IEEE.
Böhme, R., Christin, N., Edelman, B. and Moore, T., 2015.Bitcoin: Economics, technology, and governance. Journal of Economic Perspectives, 29(2), pp.213-38.
Cheah, E.T. and Fry, J., 2015. Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin. Economics Letters, 130, pp.32-36.
Ciaian, P., Rajcaniova, M. and Kancs, D.A., 2016. The economics of BitCoin price formation. Applied Economics, 48(19), pp.1799-1815.
Crosby, M., Pattanayak, P., Verma, S. and Kalyanaraman, V., 2016.Blockchain technology: Beyond bitcoin. Applied Innovation, 2(6-10), p.71.
Dwyer, G.P., 2015. The economics of Bitcoin and similar private digital currencies. Journal of Financial Stability, 17, pp.81-91.
Dyhrberg, A.H., 2016. Bitcoin, gold and the dollar–A GARCH volatility analysis. Finance Research Letters, 16, pp.85-92.
Ey.com. 2019. [online] Available at: https://www.ey.com/Publication/vwLUAssets/EY-IFRS-Accounting-for-crypto-assets/$File/EY-IFRS-Accounting-for-crypto-assets.pdf [Accessed 11 Nov. 2019].
Eyal, I. and Sirer, E.G., 2018. Majority is not enough: Bitcoin mining is vulnerable. Communications of the ACM, 61(7), pp.95-102.
Eyal, I., Gencer, A.E., Sirer, E.G. and Van Renesse, R., 2016.Bitcoin-ng: A scalable blockchain protocol. In 13th {USENIX} Symposium on Networked Systems Design and Implementation ({NSDI} 16) (pp. 45-59).
Forbes.com. 2019. Bitcoin Is An Asset, Not A Currency. [online] Available at: https://www.forbes.com/sites/jeffreydorfman/2017/05/17/bitcoin-is-an-asset-not-a-currency/#798b4af62e5b [Accessed 11 Nov. 2019].
Garay, J., Kiayias, A. and Leonardos, N., 2015, April. The bitcoin backbone protocol: Analysis and applications. In Annual International Conference on the Theory and Applications of Cryptographic Techniques (pp. 281-310).Springer, Berlin, Heidelberg.
Glaser, F., Zimmermann, K., Haferkorn, M., Weber, M.C. and Siering, M., 2014.Bitcoin-asset or currency?revealing users' hidden intentions. Revealing Users' Hidden Intentions (April 15, 2014). ECIS.
Mbs.edu. 2019. [online] Available at: https://mbs.edu/getattachment/fircg/fircg-2016/papers/8-adrian-2c-kihoonbitcoin-baur-et-al-2015-p.pdf [Accessed 11 Nov. 2019].
Nadarajah, S. and Chu, J., 2017.On the inefficiency of Bitcoin. Economics Letters, 150, pp.6-9.
Narayanan, A., Bonneau, J., Felten, E., Miller, A. and Goldfeder, S., 2016. Bitcoin and cryptocurrency technologies: a comprehensive introduction. Princeton University Press.
O'Dwyer, K.J. and Malone, D., 2014. Bitcoin mining and its energy footprint.
Sapirshtein, A., Sompolinsky, Y. and Zohar, A., 2016, February.Optimal selfish mining strategies in bitcoin.In International Conference on Financial Cryptography and Data Security (pp. 515-532).Springer, Berlin, Heidelberg.
Sasson, E.B., Chiesa, A., Garman, C., Green, M., Miers, I., Tromer, E. and Virza, M., 2014, May.Zerocash: Decentralized anonymous payments from bitcoin. In 2014 IEEE Symposium on Security and Privacy (pp. 459-474).IEEE.
Urquhart, A., 2016. The inefficiency of Bitcoin. Economics Letters, 148, pp.80-82.
To export a reference to this article please select a referencing stye below:
My Assignment Help. (2022). Accounting Principles II. Retrieved from https://myassignment.live/free-samples/acct2023-accounting-principles-ii/financial-statements-of-the-business-file-A1D39FE.html.
"Accounting Principles II." My Assignment Help, 2022, https://myassignment.live/free-samples/acct2023-accounting-principles-ii/financial-statements-of-the-business-file-A1D39FE.html.
My Assignment Help (2022) Accounting Principles II [Online]. Available from: https://myassignment.live/free-samples/acct2023-accounting-principles-ii/financial-statements-of-the-business-file-A1D39FE.html
[Accessed 06 September 2022].
My Assignment Help. 'Accounting Principles II' (My Assignment Help, 2022) < https://myassignment.live/free-samples/acct2023-accounting-principles-ii/financial-statements-of-the-business-file-A1D39FE.html> accessed 06 September 2022.
My Assignment Help. Accounting Principles II [Internet]. My Assignment Help. 2022 [cited 06 September 2022]. Available from: https://myassignment.live/free-samples/acct2023-accounting-principles-ii/financial-statements-of-the-business-file-A1D39FE.html.
Are you confident that you will achieve the grade?
Our best Expert will help you improve your grade
If you are the original writer of this content and no longer wish to have your work published on Myassignment.live then please raise the content removal request.