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Block Chain Technologies and Crypto Currency as Financial Assets

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Block Chain Technologies and Crypto Currency as Financial Assets

Cryptocurrency is the new age of financial assets that stands in for the contemporary one, usually cash. Blockchain technologies in the cryptocurrency have digital assets like bitcoin, an electronic currency that allows payment for goods and services through the internet (Berson & Berson, 2019). For example, performing transactions in the absence of a bank or any financial institution is very difficult, especially if the money is to move across borders. Traditionally, banks may charge very high fees to make these transfers, which is why the cryptocurrency is handy. Considering the high control of the government over financial transactions, Iran adopted cryptocurrency and blockchain technologies (Berson & Berson, 2019). The Iranian government was initially against cryptocurrency but later embraced the emergent technology with time (Masoomzadeh & Salmani, 2022)). The government realized that blockchain technologies have positive economic potential and can evade economic sanctions, banking restrictions, and legal barriers from the United States (US). This research study has the potential to bring out the benefits of cryptocurrency, giving more reasons why Iran and other nations' governments need to validate the new forms of financial assets. The use of cryptocurrency and blockchain technology requires Iran to impose various possible interventions that helps harness the full potential of the emergent technology as a better financial asset than traditional cash. Although Iran largely uses cryptocurrency to transact business, the technology is unregulated, which causes potential risks and security concerns.

Background

The root cause of the problem is that the US imposed sanctions against Iran. After withdrawing from the Joint Comprehensive Plan of Action (JCPOA), the US decided to reimpose sanctions against Iran's financial sectors (Mahdavieh, 2022). The sanctions were imposed and target specific sectors of Iran, including oil, shipping, and banking. Given these sanctions, the Central Bank of Iran had to make improvisations to bring in the new digital asset of cryptocurrency. The country used the Iranian rial to launch a national cryptocurrency through the central bank. Iran imposed a new policy to facilitate financial transactions outside the control of external forces like the US. Cryptocurrency and blockchain technologies would foster bilateral trade that, in turn, would evade economic sanctions and bypass the dollar that has dominated the global financial system.

The state and society of Iran have relied on cryptocurrency and blockchain technologies to evade US sanctions and generate revenue. However, implementing blockchain technologies has brought several challenges to the government of Iran. The scope of the challenges revolves around the dimensions of volatility, energy, and regulation. The first issue with cryptocurrency technologies is that they are highly volatile and very risky for financial transactions. The high cryptocurrency volatility makes it dangerous for Iran or any other country to engage in large-scale payments for goods exported or imported (Mahdavieh, 2022). The next problem with cryptocurrency is that the technology requires a very high energy use to mine. Cryptocurrencies like Bitcoin are blockchain technologies when compelling computers solve complex mathematical problems through mining. The amount of energy that is needed to mine cryptocurrency is incredibly huge. It can result in enormous costs for a nation, as it adds up to the country's total energy budget (Mahdavieh, 2022).

In terms of regulation, Iran is facing sanctions and regulations against the use of cryptocurrency. Iran and other states like Venezuela are facing sanctions and strict regulations from international regulators concerned about the legal procedure and usage of the new financial asset. The body of regulators like the World Bank and International Monetary Fund (IMF) and critical governments like the US are concerned about how Iran and other states are mining cryptocurrency (Corbet et al., 2010). These regulators are concerned that Iran and similar states could use cryptocurrency illegally by facilitating illicit financial activities such as money laundering. The Financial Action Task Force (FATF) has blacklisted Iran together with North Korea for conducting 7,000 transactions worth millions of dollars for cyberattacks actors who targeted residents of the US, United Kingdom (UK), and Canada (Mohsin, 2020). Cryptocurrency mining in Iran is receiving lesser and lesser approval because of the possibility of funding terror activities unanimously. Thus, cryptocurrency and blockchain technologies have been revolutionary for Iran and its people but have several obstacles.

With cryptocurrency, Iran may escape sanctions, build up its reserves, and expand commerce, especially with nations also subject to isolation and sanctions. Iran confronts three challenges preventing cryptocurrencies from being a panacea for money accumulation, trade development, and breaking restrictions. The first barrier is cryptocurrency's price volatility, which makes it dangerous for import orders and other large-scale transactions. This is perhaps why Iran is reluctant to introduce its national currency. The second is the massive energy consumption of cryptocurrency mining, which has put pressure on its national budget and electricity infrastructure despite Iran's enormous fossil fuel reserves. The third and final barrier is the increased international and domestic regulation, together with growing authoritarianism and repression, which have hampered the development and competitiveness of the sector within Iran. Although the original purpose of cryptocurrencies was to limit state authority, the Iranian government may attempt to do so while navigating the difficulties presented by the technology, particularly in the face of increased internal and global pressures.

Literature Review

Introduction

Block chain technologies and cryptocurrencies have emerged as a new and rapidly evolving field in the world of finance. Cryptocurrencies, in particular, have gained significant attention as a potential new financial asset that could challenge traditional currencies and financial instruments. The performance of cryptocurrencies as an investment, the impact of government cryptocurrency adoption on the economy and financial system, and the effect of blockchain technology on the stock market are the topics that were utilized to collect the data. This literature review will examine three articles that explore various aspects of block chain technologies and cryptocurrencies as financial assets.

The literature review articles were sourced from the Monroe College library's PROQUEST and EBSCOhost databases. Useful supplementary data was obtained from scholarly books, magazines, newspapers, and articles. They aided in the collection of data pertinent to the study of green cloud computing's effects on preserving the natural world. Articles from scholarly publications were retrieved online using a variety of search engines as well as by entering the title directly into the website of the respective publication's publisher.

Review of Literature

Cobert et al. (2018) extensively researched blockchain technology and the essential topics in such markets. The authors come from higher learning institutions like Dublin City University and Trinity College Dublin. The authors present the study in 2018 about the major topic since the development of Bitcoin as a financial asset in 2009 up to 2018. The main areas of the research paper include how blockchain technology has evolved, the developments happening in such markets, and unique issues about such demands. The researchers wanted to analyze various literature surrounding the growth of blockchain markets.

The authors also explain that direct transactions and payments between parties could be at risk of pricing bubbles. Cobert et al. (2018) suppose that this currency could endure the problem of price bubbles because of the recent increase in the price of Bitcoin. The new technology in finance will impact financial regulations because it brings forth a new set of currencies that traders will engage in. Companies that diversify to this technology are better positioned to earn returns as their income is also diversified. The authors suggest that Bitcoin technology consumes more energy in the present than before. Other studies indicate that bitcoin technology only consumes a little power since mining costs exceed revenue.

Minimization of Risks

Masoomzadeh and Salmani (2022) presume that all other research in the past has been focusing in the risks of stock exchange. They put effort in explaining the relationship between blockchain and the market of stock exchange. Masoomzadeh and Salmani (2022) determine that the technology of blockchain could indeed be used to control several risks that arise in the stock market. The researchers, who are also members of Tabriz University, are qualified for such kind of research. These researchers embarked on research in the year 2021 in Iran.

           The authors used applied research to find and fulfill the purpose of the study. The analytical part of the research explained the analysis of various findings. Masoomzadeh and Salmani (2022) made effort to determine whether those companies in the business of stock trade would benefit from the improvisation of blockchain techniques, especially in Iran. The study period was between April 2011 to August 2021. The authors use documentaries and library means from the stock exchange of Iran to collect statistics for the research. The results show that the market share negatively affects the total risk. The total risk of the market rises by 0.01% when the market shares of the stock rises by 1 percent. The finding of the study showed that the profits that companies can get out of transactions are inversely proportional to the risks that they face. Most importantly, blockchain technology positively influences risk since it increases risk by 0.0002.

Adoption of Cryptocurrency Strategies

               Mahdavieh (2019) conducted research to analyze the characteristics of kleptocratic regimes and how these attributes help to adopt cryptocurrency strategies of the government. The paper by Mahdavieh (2020) was impactful in showing that developing countries like Iran have suffered a lot from the restrictions of the first world countries like America. The authors were determining whether the national governments are likely to implement new cryptocurrency policies, especially in kleptocratic regimes.

               The research methodology was a complex analysis of statistics to determine the relationship between dependent and independent variables. The author used Mill’s method of agreement to establish whether attributes lead to the same outcome, thus confirming the correlation. The author also went further to conduct a comparative case study of the three countries. The findings of the study showed that cryptocurrency is initially part of the citizens of Iran, Russia, and Venezuela. The citizens of these countries share the attributes of a depreciating currency because of the sanctions from the West. Sanctions from western nations like the US continue to depreciate the value and progress of the economy.

Analysis of Literature

Cobert et al. (2018) article is suitable for gaining an understanding of the performance of cryptocurrencies as an investment and the factors that affect their prices. Its systematic approach and statistical evidence make it a reliable source for this topic. Mahdavieh (2019) article is suitable for gaining an understanding of the motivations behind government cryptocurrency adoption and the potential benefits and risks of such adoption. Its in-depth case studies make it a valuable source for this topic. Masoomzadeh and Salmani (2022) article is suitable for gaining an understanding of the potential effect of blockchain technology on the stock market and its volatility during crises. Its focus on a specific country and context may limit its generalizability, but its analysis of the Iranian stock market is still valuable.

Discussion

Introduction to Discussion

Adopting cryptocurrency as a new financial asset has helped Iran overcome the conventional cash currency with several drawbacks. However, cryptocurrency also faces challenges in Iran, especially regarding the sanctions the US and other significant organizations have placed on Iran. Financial sanctions have made it difficult for Iran and similar countries adopting these blockchain technologies to trade freely as they please. The problem with cryptocurrency has affected the Iranian population and other countries that have signed such contracts as Venezuela and North Korea. Ideally, the US government and international bodies like the IMF are placing trade barriers on Iran because of the possible risk of funding illegal and terrorist activities.

According to the literature review, bitcoin in cryptocurrency is the solution to the economic hurdles of the Iranian nation and similarly affected populations. Investing in cryptocurrency and blockchain technologies could offer potential solutions to the financial setbacks of these countries' economies. By trading in cryptocurrency techniques, Cobert et al. (2019) show that cryptocurrency can improve the risk-return trade-off with various portfolio diversifications. The findings also show that cryptocurrency helps deal with the problem of the sanctions against the economies of nations like Iran, Venezuela, and Russia (Mahdavieh, 2019). Blockchain technologies help these three countries proceed with their financial transactions without being affected by the US dollar currently used to sanction financial progress. Based on these findings, adopting cryptocurrency is a viable solution for nations like Iran and Venezuela, facing harsh economic downturns from the sanctions of the US and other bodies like the IMF.

Recommendations

Mohsin (2022) proposed that countries that use cryptocurrencies should enact a regulatory framework. The framework should include registration of cryptocurrency exchanges and other service providers. These new sets of financial assets are yet to increase the country's financial performance as the dollar's limitations will no longer affect it. The country needs to devise how to adopt cryptocurrency as the new trend in financial trade dealings (Mohsin, 2022). The issues that the country has to look at include how to provide fuel energy and the necessary grant licenses to help adopt the new technology. According to Mahdavieh (2019), Iran can use cryptocurrency when importing products to circumvent dollar sanctions since this currency does not go through conventional banking systems and are therefore not easy to track. The nation must find a way of implementing cryptocurrency technology and using it for legal services that are not likely to put its citizens at risk. By adequately implementing such blockchain technologies, nations like Iran and Venezuela can trade properly without the dollar yet improve the overall well-being of the business environment (Mahdavieh, 2019).

Iran's primary recommendation is to bring in better policies for trading with cryptocurrency as a modern financial instrument. The main issue that puts the population of Japan at risk is the need for more transparency in this digital asset (Mahdavieh, 2019). In as much as it helps avoid sanctions from the US, the adoption and use of cryptocurrency need to be more transparent so that the nation does not suffer further cases of illegal trade that could be risky. Following the example from Japan, one of the pioneers in crypto-technology, Iran can also make its transactions more transparent. Japan's payment services act (PSA) makes its market safer and more efficient for investors (Mohsin, 2022). The PSA outlines that companies using cryptocurrency assets to trade should first provide and register their details with the necessary officials. Japan included cryptocurrency as crypto-assets so companies can bring their transactions to the open when trading in such financial assets. Thus, Iran must also implement similar regulations to avoid possible opposing sides of digital assets (Mohsin, 2022).

When Japan adopted the PSA, there were specific aims that the country was trying to implement and protect. One of the aims was to make cryptocurrency safer and protect users from potential hacks (Mahdavieh, 2019). The other roles of these regulations were that the nation would have a more transparent regulatory framework and limit the trading of such derivatives by limiting margin trading. The information that trading companies need to provide as per the PSA includes the company's name and headquarters, the address of the exchange handling office, board members, accounting advisor, supported cryptocurrencies, company capital, and the company's business model (Mohsin, 2022). Similarly, Iran can follow these policies to ensure that the companies dealing with cryptocurrency are more transparent and safe for overall business operations.

Conclusions

This research paper tends to highlight the issue of cryptocurrency and blockchain technologies and how they impact the world of finance in a country like Iran. Cryptocurrency and bitcoin help to reduce the amount of money that intermediaries charge. Blockchain technologies and cryptocurrency allow the sender and the receiver to perform their transactions without worrying about third parties. Following US sanctions against financial operations in Iran, the latter imposed a new policy that would facilitate financial transactions out of the control of the dollar. The World Bank, International Monetary Fund (IMF), and critical governments like the US are concerned that Iran and similar states could use cryptocurrency illegally by facilitating illicit financial activities such as money laundering. Japan has the payment services act (PSA) that makes its market safer and more efficient for investors. The PSA outlines that companies using cryptocurrency assets to trade should first provide and register their details with the necessary officials. Iran can follow these policies to ensure that the companies dealing with cryptocurrency are more transparent and safe for overall business operations.

References

Berson, D., & Berson, S. (2019). Overview of Blockchain Technology and US Blockchain Law.  The Computer & Internet Lawyer,  36(6), 1-6. https://bersonlaw.com/resources/2019-06---Article---Overview-of-Blockchain-Technology-and-US-Blockchain-Law.pdf

Corbet, S., Lucey, B., Urquhart, A., & Yarovaya, L. (2019). Cryptocurrencies as a financial asset: A systematic analysis.  International Review of Financial Analysis,  62, 182-199. https://doi.org/10.1016/j.irfa.2018.09.003

Mahdavieh, R. (2019). Governments' Adoption of Native Cryptocurrency: A Case Study of Iran, Russia, and Venezuela. Journal of Economics, Finance and Administrative Science, 24(47), 89-98. doi: 10.1108/JEFAS-02-2019-0029

Masoomzadeh, S., & Salmani, B. (2022). The Blockchain Revolution and the Volatility of Stock market in Iran During the COVID-19 Crisis. Journal of Economics, Finance and Administrative Science, 27(56), 12-23. https://www.researchsquare.com/article/rs-1935978/latest.pdf

Mohsin, K. (2022). Cryptocurrency Legality & Regulations–International Scenario.  International Journal of Cryptocurrency Research, ISSN, 2790-1386. https://www.svedbergopen.com/files/1654511294_(4)_IJCCR16122021QZD0_(p_19-29).pdf