Things to Know About Cryptocurrency Market & Cryptocurrency Exchange

Cryptocurrencies are digital assets that use cryptography, an encryption technique, for security. Cryptocurrencies are primarily used to buy and sell goods and services, though some newer cryptocurrencies also function to provide a set of rules or obligations for its holders - something we will discuss later. They possess no intrinsic value in that they are not redeemable for another commodity, such as gold. Unlike traditional currency, they are not issued by a central authority and are not considered legal tender.

At this point, use of cryptocurrencies is largely limited to "early adopters." For scale, there are around 10 million bitcoin holders worldwide, with around half holding bitcoin purely for investment purposes. Objectively, cryptocurrencies are not necessary because government-backed currencies function adequately. For most adopters, the advantages of cryptocurrencies are theoretical. Therefore, mainstream adoption will only come when there is a significant tangible benefit of using a cryptocurrency.

With cryptocurrencies still in the early innings, there are many issues surrounding its development. It’s interesting to contemplate the philosophical and political implications of cryptocurrencies. Cryptocurrencies markets are inherently political because they challenge the traditional "social contract" that societies operate under. According to this theory, members of society implicitly agree to cede some of their freedoms to the government in exchange for order, stability, and the protection of their other rights. By creating a decentralized form of wealth, cryptocurrencies markets are governed by code alone.It’s no wonder, then, that the accounting treatment, regulation, and privacy issues surrounding cryptocurrencies and blockchain have yet to be fully determined. The following section will discuss these tangible aspects of cryptocurrency development.

Accounting Treatment of Cryptocurrencies

A cryptocurrency exchange, or a Digital Currency Exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Cryptocurrency exchanges may accept credit card payments, wire transfers or other forms of payment in exchange for digital currencies or cryptocurrencies. A cryptocurrency exchange can be a market maker that typically takes the bid–ask spreads as a transaction commission for is service or, as a matching platform, simply charges fees.

The cryptocurrency exchanges can send cryptocurrency to a user's personal cryptocurrency wallet. Some can convert digital currency balances into anonymous prepaid cards that can be used to withdraw funds from ATMs worldwide while other digital currencies are backed by real-world commodities such as gold.

The creators of digital currencies are often independent of the digital currency exchange that facilitates trading in the currency. In one type of system, Digital Currency Providers (DCP) are businesses that keep and administer accounts for their customers, but generally do not issue digital currency to those customers directly. Customers buy or sell digital currency from digital currency exchanges, who transfer the digital currency into or out of the customer's DCP account. Some exchanges are subsidiaries of DCP, but many are legally independent businesses. The denomination of funds kept in DCP accounts may be of a real or fictitious currency.

A cryptocurrency exchange can be a brick-and-mortar business or a strictly online business. As a brick-and-mortar business, it exchanges traditional payment methods and digital currencies. As an online business, it exchanges electronically transferred money and digital currencies. Often, the digital currency exchanges operate outside the Western countries to avoid regulation and prosecution. However, they do handle Western fiat currencies and maintain bank accounts in several countries to facilitate deposits in various national currencies.

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