Investments in crypto currency

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St. Petersburg state university of economics

INVESTMENTS IN CRYPTO CURRENCY

A.M. Stolyarova, student

St. Petersburg

Abstract

investment crypto currency

The article reveals the essence of such a concept as the crypto currency. A number of terms are given that allow one to understand the specifics of this work. The specifics of investments into the crypto currency are considered. The advantages and disadvantages of this type of investment are described. The comparison of crypto-currencies by different characteristics is given. The main types of investment-grade crypto-currencies are listed.

Keywords: crypto-currency, bitcoin, fiat and non-monetary money, mining, money surrogate, minigroup, investments.

Аннотация

ИНВЕСТИЦИИ В КРИПТОВАЛЮТУ

А.М. Столярова, студент Санкт-Петербургский государственный экономический университет

В статье раскрыта сущность такого понятия, как криптовалюта. Приведен ряд терминов, позволяющих вникнуть в специфику данной работы. Рассмотрена специфика вложений в криптовалюту. Описаны достоинства и недостатки такого рода инвестиций. Приведено сравнение криптовалют по различным характеристикам. Перечислены основные виды инвестиционно опасных криптовалют.

Ключевые слова: криптовалюта, биткойн, фиатные и нефиатные деньги, майнинг, денежный суррогат, майниг-ферма, инвестиции.

The main text

As a starting point of this work, I found it necessary to determine what is the difference between fiat money and non-financial ones. To fiat money should be referred to cash with a nominal value guaranteed and established by government. In this case, the value of the material from which they are made is completely irrelevant. Their functioning as a means of payment is provided by law.

Non-monetary money, in turn, does not have a nominal value established by the state. Virtual money, issued by private players, are non-fiat money, which is any crypto currency. In a significant number of countries, the issue of non-monetary money is banned or strictly regulated. Today, under nefatnymi money primarily considered crypto-currencies that have become widespread in use around the world, having their distinctly distinctive features from other non-financial means.

Holding Bitcoin means to have a share in this venture. If Bitcoin ever replaces monetary reserves of central banks or becomes the dominant currency for international trades - just to name two examples -- the value of one Bitcoin will be far beyond 10,000 Dollar. Buying and keeping cryptocurrencies is a bet on the success of this silent revolution of money. It's like a security of a large ecosystem.

«Crypto currency is digital coins (currencies), the issue and accounting of which are based on cryptographic methods (for example, the Proof-of-Work protection method and asymmetric encryption), and the functioning of the system is decentralized in a distributed computer network. Crypto-currencies can be stored and moved from one electronic purse to another. Such a currency, as a rule, can not be faked. After 2010, this form of electronic money began to develop actively and attracted worldwide attention around the world. Even in the novel by Nil Sting «Kryptonomicon», written in 1999, according to the story line, several programmers are working on the creation of the first crypto currency and subsequently face resistance from the largest corporations and governments. Thus, the appearance of a crypto-currency was predicted in a fantastic novel «.

For further disclosure of the topic, it seems to us, it is necessary to consider such an important concept as mining. «Mining (English -- extraction of minerals) -- the process of issuing virtual money» [2]. All virtual electronic funds issued by private issuers, as we believe, should be classified as a monetary surrogate. «The money surrogate causes an increase in problems both in monetary circulation and in the social and economic life of the country due to its insecurity. Due to the fact that the issuance of crypto-currency loans by private persons in most cases is made for profit and the majority of participants are involved in the process of applying them for the same purpose, financial pyramids can arise «

According to my opinion, the definition of virtual money in the form of an exceptionally negative phenomenon is not entirely true. In fact, crypto-currencies are the answer to many innovations and challenges of the modern world order. When virtual money is used to confirm payment, communication with the center is not required, the necessary confidentiality is ensured, which led to an active growth of settlements in virtual money. We are sure that this system is most effective when providing payments less than $ 10. USA (micropayments), because the cost of transactions in virtual settlements is minimized, unlike the use of traditional systems based on credit cards. The authors suggest that it is micropayments that in the near future should provide the main sales turnover of information on the Internet.

Another property of the crypto-currency that threatens the state legal order is their anonymity. This manifests their similarity with cash in cash. Only here the crypto currency is able to freely move around the world, which is not to say about cash. This can make it an effective tool in the hands of criminal organizations.

The authors suggest that the main cause of negative attitudes towards cryptocurrency by governments world powers is the possibility of tax evasion, making them anonymous. That is, the main instrument for maintaining the state system falls under attack. This problem is already being considered by individual state authorities, because cryptocurrency is now gained great popularity. The Ministry of Finance in Russia intends to limit access to private individuals' crypto currency.

Let's note the disadvantages and advantages of investing in the crypto currency by the example of the most popular of them -- Bitcoin. It is worth starting with the advantages we have identified, which the bitcoin investor has reason to expect:

1. On December 12, 2017, 1 bitcoin was equal to 17477 dollars. USA. Therefore, the price increase has a rather rapid character, since its three-fold growth occurred in two months.

2. Low transaction costs in comparison with the tariffs of leading banks.

3. Bitcoin has not yet managed to take control of world governments, so talking about its collapse in the short term does not make sense.

Let's also highlight the disadvantages of using crypto currency in the example of bitcoin:

1. Increasingly, there are failures in the network, transactions sometimes «do not pass.»

2. There is an insecurity of this currency, lack of control over it causes negative interest in a number of states.

3. Crypto-currencies were conceived for a new settlement system, without commission for transfers, but in the same bitcoin, there is obviously a constant increase of this commission, it would seem, in a system where no one owes anything to anyone. In addition, ordinary users of crypto currency are not at all interested in the means of calculation, they acquire it or can only for investment purposes.

4. The number of bitcoins is limited. 21 million -- the limiting number of bitcoins. When the issue of bitcoins ceases, new coins will simply cease to be created. Miners will receive a percentage of transactions. At the work of the network this will not affect. More interesting is the question of the subsequent change in the rate of the crypto currency. We believe that, on the one hand, an increase in demand with a limited supply should lead to an increase in the value of this currency in the medium term. On the other hand, the actions of the Chinese government play against bitcoin, and now very few people will really undertake to predict the course even for the near future. After all, the so-called bitcoin generation farms are for the most part located on the territory of China, these are thousands of video cards connected to a single system, and they generate bitcoins.

5. Now there are so many companies and individuals who bought video cards in bulk, that their total deficit has arisen. They offer customers to collect small mining farms sometimes from several, and sometimes from tens and hundreds of video cards, with a huge wrap-up, referring to the deficit that has arisen in the video card market. We believe that in fact, now such bitcoins-farms can not compete with huge systems, concentrated mainly in China, created at the right time. Most often small farms that people can afford, not ready to invest huge fortunes into the business, do not even pay off in the current conditions. Video cards often fail, because the safe temperature threshold is constantly exceeded, and a large amount of electricity is expended.

6. In my opinion, there is a huge amount of crypto-currencies, which are extremely unreliable for investment, popular with bitcoins in the population, which often thinks that there is not much difference between crypto-currencies. As in any innovation sphere, scammers appear. The most common, in our opinion, which are based on feedback from investors who invested in these currencies, include: OneCoin, E-Dinarcoin, Kibo Lotto and, of course, Mavrocoin.

The advantages and disadvantages described allow us to consider the question of investing in the crypto currency, without giving precise information about the level of investment risk, so I decided to conduct my own detailed analysis.

First, the task was to allocate a measure of investment risk for investments in the crypto currency. For comparison, the assessment of deposits in various investment objects on a scale of 1 (lowest risk) to 10 (highest risk).

Table 1

When comparing the level of risk, it was possible to find out that investment in the crypto currency is a high-risk type of investment, second only to participation in financial pyramids and lotteries, the main reason being the disapproval of some governments of world powers. But do not forget that the potential profit when investing in objects with a level of investment hazard to 5 points is much less than when investing in crypto currency.

Table 2

In order to understand which Crypto-currencies to invest more wisely, I developed a methodology for estimating a ten-point scale for ranking various characteristics of individual crypto-currencies. It was only a speculative implementation of this assessment, which is based on a number of studies by other authors, and was brought to a more convenient and understandable form for the average person.

As the main characteristics of the reliability of the crypto currency, we selected three indicators: rate stability, liquidity, prevalence as a means of payment. In this analysis, a system for evaluating criteria from 0 (lowest level) to 10 (highest level) is appropriate. For comparative analysis, crypto-currencies, created more than four years ago, were arbitrarily chosen, and continue to be very popular to this day. The newest of them appeared in 2013. Time verification allows you to objectively evaluate their characteristics.

Based on the data of Table 2, we can conclude that Bitcoin is much more reliable than other virtual currencies. We believe that the relative stability of the exchange rate is due to the influx of new investors, which provides a constant flow of advertising bitcoin-network. It should be noted that the assessment of this parameter is not 10 points, but 8, since the current bitcoin rate is not so far from the maximum possible with the current volume of the «extracted» currency, so that subsequent drawdowns are possible. Among other currencies, Litecoin has reliable indicators. With regard to the stability of the exchange rate, it can be concluded that the currency is fairly stable, because it has a correction factor from extremes, a developed advertising campaign and information support that protects it from drawdowns.

Bitcoin and Litecoin have high liquidity. Namecoin and Peercoin have long been losing liquidity, but having a cross-rate with the US dollar is their clear advantage. The least liquid is due to the low capitalization of Primecoin. Feathercoin only exchanges for bitcoins, so it is difficult to characterize its liquidity level.

Bitcoin has the widest distribution in operations of purchase and sale, less has Litecoin, other currencies and are not used at all for this purpose. For clarity, we calculated a score of the prevalence of transactions made in US dollars, euros and rubles with respect to the estimation of bitcoin, which was 9 points. For the dollar, it was approximately 900, for the euro 700, and for the ruble 350 points.

The authors considered sufficient data to make certain recommendations. Taking into account the data of Table. 2 and other provisions, you can create a new table, where on the basis of scenario analysis, the growth potential of each of the considered virtual currencies will be calculated. The analysis is based on a «medium-term» scenario, taking into account the fact that the population will still have a positive attitude to the crypto currency.

The authors consider the most reasonable to consider growth in the long-term (150 days) and the medium-term interval (60 days).

Due to the high current capitalization, the growth potential of Litecoin and Bitcoin is not able to be realized very quickly, but in the long term there are practically no restrictions from above. Peercoin is still a promising virtual currency, in our opinion, more attention will be attracted to it every year. Namecoin has a very high current price, so the risks for the negative scenario development of the depositors will be very high, this price is a deterrent to its growth. Primecoin is practically not used in calculations, it is not known when there are stores that accept it for payment. If the situation is not corrected, there will be a risk of stagnation. Feathercoin is gradually developing, it is little susceptible to any risks, therefore, along with Litecoin and Bitcoin is a good investment object.

Summarizing, it should be noted that investing in crypto currency or not is a personal matter for everyone. But before doing this it is necessary to thoroughly understand the question. According to the authors, bitcoin in 2018 will still add to the dollar exchange rate, and what will happen next, when coverage becomes much broader, no one can assume, because at any moment the state factor can interfere.

References

1. Galimova G.A. Electronic money as the basic tool of functioning of an information society // Izvestiya UrGEU. 2013. №3. Pp. 32-36.

2. Ivanitsky VP, Maramygin MS Innovative development of monetary and financial systems in conditions of spatial economic transformations // Izvestia Ural State University of Economics and Management. 2016. № 2. P. 57-58.

3. Maramygin MS, Prokofieva EN, Markova AA Economic nature and the problems of using virtual money (kriptovalyut) // Izvestiya UrGeU. 2015. № 2. P. 41-45.

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