Cryptocurrencies hold the utmost potential to let your assets acquire a credible value. One can either utilize it to do necessary transactions – national or internal – or prepare a premium portfolio for an organization.
Such a value can easily be created with the help of the websites using the transactional database of this distributed ledger technology.
Besides one must be aware of the taxonomy used by this virtual medium of exchange in estimating the profits and losses so that taxpayers can enumerate capital gains on small investments.
Also, there is a bank (CBB) located in Bridgetown that is planning to use Bitcoin and settle the transactions of potential customers digitally.
A few insights about the approaches used by the Central Bank of Barbados
To cope up with this changing time, it is vital to use the benefits of distributed ledger technology.
It can’t only strengthen the pillars of financial stability in the coming years but also offer a path to which one can make a good reputation in the finance market.
In the last four years the price of cryptocurrencies – especially bitcoin – has increased manifold. It was 0.09 USD in 2010. As time passed, it grew exponentially and reached up to 1120 US dollars.
Then the price went low and fluctuated from 177 US dollars to $250 till October 2017. Though the fluctuations were there yet CBB (Central Bank of Barbados) decided to explore more about these internet-based currencies.
- Reviewing cryptocurrencies from a literature perspective
The crypto-tokens – ETH, XRP, BCH, etc – are confined with algorithms that use protocols for connecting well in cyberspace via peer-to-peer topology.
With the change in derivatives of demand as well as supply, the significance of such tokens varies periodically.
Furthermore, the Fintech community has accepted the fact that one can widely use such currencies onto mobile phones at much cheaper costs.
Such costs are involved in their necessary production plus transmission via blockchain – a technology that somewhere uses a distributed ledger framework at low stakes of inflation.
Additionally, many banks like Citibank have understood this framework and utilizing the transmission protocols so that they can develop their own virtual currency for stock exchange and encountering other operations of finance.
But the issue is that many people aren’t ready to accept it as an alternative to the existing system of currency exchange.
Either it hasn’t been accepted by the jurisdictions implied to countries like Norway, Canada, etc or these countries are planning to use it in the form of private money not prone to the parameters and other takeaways governing taxation, payroll administration, accounting, and so on.
However, there is a rapid demand hike for these currencies in the form of FB (FaceBook) credits, reward coins of Amazon and Microsoft Points. Though they are not claimed for real assets yet one can take them up and facilitate their online purchases for discounts and other sorts of rewards.
- Approaches for examining the real-time outcomes of cryptocurrencies
Two approaches were used by the bank situated in Bridgetown. In the first one, the authorities have decided to examine the fixed proportions invested in Bitcoin.
Relatively the investments that were analyzed were small. They were like 0.01 to 5 percent. The only purpose was to examine the behavior of this distributed ledger technology in real-time.
If we talk about the second approach, the methods of Monte Carlo were executed. Such methods comprise of a set of computational algorithms that use statistical analysis for identifying the behavioristic probability of response the existing entity may depict in real-time.
On differing timestamps, the probabilistic behavior of Bitcoin was analyzed. It was selected from 2015 to 2025.
In every evaluation that was examined for the assets available for the stock exchange, it was seen that demand for the upcoming imports is almost to the revenue of the previous year. This was actually shocking.
The reason is that the risk of losing the assets at the initial stage is very low. Later when the research is iteratively performed over horizons (1,2,5 and 10) the value for mean as well as standard deviation kept on increasing.
Such a change is drastic as these iterations somewhere acquire large margins of error. But the authorities thought that further investments may lead to good returns. The results were stagnant until December 2018.
As the forecasting horizons began to expand, the returns expected from Bitcoin began to increase – the balance reached a billion-dollar.
Consequently, the result of the analysis is that the existing reserves of CBB – if allotted a share of Bitcoin currency – will give volatile returns till the period of 2025. Thus, it is beneficial to invest some of the shares in Bitcoin though they may produce varying results till 2025.
Is cryptocurrency still capable of replacing the traditional banking system?
Cryptocurrencies can credibly create a premium value of the existing organizations in the finance market. With the case study of a central bank situated in Bridgetown, one may conclude that the chances of getting successful returns were low at the initial stages.
As per the analysis of this bank, it is expected that Bitcoin may yield positive outcomes when dragged to differing timestamps from the present year i.e. 2020 to the next fifth year which is 2025.
Though the methodologies of Monte Carlo applied on the parameters for mean and standard deviation yet the proportions of returns are likely to increase with a very small percentage (maybe up to 10 maximum). But still, the research was successfully executed and the purpose was completed up to some extent.
However, not only bitcoin but any other virtual currency that is using the distributed ledger technology in the current scenario is solely capable of replacing the existing system of money exchange prevailing since ages.
If authorities like CBB are planning to implement any of the cryptocurrencies for a medium of exchange of stocks or other commodities, they may go for it. Either they can completely replace their traditional ways of operating funds transfer or amend them – NEFT and RTGS – with the trading mechanisms of the crypto-currencies available in the market.