Advantages and Disadvantages by Flamur Bunjaku, Olivera Gjorgieva-Trajkovska, Emilija MitevaKacarski

1. Introduction
   In a historical retrospective, markets in general and financial markets in particular, have
   experienced a huge development. In this regard the instruments used as exchange instruments
   have also experienced change and have evolved in accordance to the markets needs aiming to
   make trade transactions as easy as possible. Those instruments used to intermediate the
   exchange of goods are known as money. Most of the economists define money as something
   that serves as a medium of exchange, a unit of accounting, and a store of value. Money is a
   medium of exchange in the sense that we all agree to accept it in making transactions.
   Merchants agree to accept money in exchange for their goods; employees agree to accept
   money in exchange for their labor. As a unit of accounting, money provides a simple device for
   identifying and communicating value. Money serves as a store of value in that it allows us to
   store the rewards of our labor or business in a convenient tool. In other words, money lets us
   store the value of a long, hard week of work in a tidy little stack of cash. Without money, how
   would we set aside the compensation we receive for later use? From the era of barter to
   commodity money, metal and coins, to gold and silver, continuing by modern monetary systems
   and checks and ending with the latest global currency developments, such as introduction of
   cryptocurrencies known as bitcoin and ethereum and alike, have passed centuries. Each type of
   the money has played it indispensable role in transaction activities for the respective time
   period. However, as the human society in general and markets in particular evolved, there was
   a need for more sophisticated goods exchange instruments. In this regard the introduction of
   cryptocurrencies has revolutionized the international payment system in a scale that just few
   years ago were unimaginable. A cryptocurrency is a digital or virtual currency that uses
   cryptography for security. A cryptocurrency is difficult to counterfeit because of this security
   feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its
   organic nature; it is not issued by any central authority, rendering it theoretically immune to
   government interference or manipulation. Cryptocurrencies have their benefits and drawbacks.
   The main benefits of cryptocurrencies use are that they make it easier to transfer funds between
   two parties in a transaction; these transactions are facilitated through the use of public and
   private keys for security purposes. These fund transfers are done with minimal processing fees,
   allowing users to avoid the steep fees charged by most banks for internet online based
   transactions. The threat of hacking is the biggest threat of cryptocurrency system of payments.
   For example, In Bitcoin's short history, the company has been subject to over 40 thefts,
   including a few that exceeded 1 million USD in value. However, despite the potential risks, still,
   many observers look at cryptocurrencies as hope that a currency can exist that preserves value,
   facilitates exchange, is more transportable than hard metals, and is outside the influence of
   central banks and governments. There are approximately 856 cryptocurrencies (see the
   following link https://coinmarketcap.com/all/views/all/. According to Gandal and Halaburda 
   the market of competing cryptocurrencies is an interesting market to analyze for several
   reasons. First, it was a brand new market, with many players entering and competing. It is also
   an excellent laboratory with well defined and high quality data on prices and volumes over time.
   In regard of market capitalization Bitcoin is the lider in the long list of crypto currencies, followed
   by Ethereum and Ripple, which have double million digits. The other crypto currencies have less
   value, with an increasing trend (see the above link).
2. Literature review
   Cryptocurrencies in general and bitcoin in particular came outside of the academia. However,
   since their introduction contribution of academia in this financial monetary field has been very
   significant. However, since the cryptocurrency market is evolving with an enormous speed and
   there is a significant dose of confusion of what is going on, it is in our opinion that academic
   research in this field should be taken with reserves and caution. Despite these facts, academic
   research on cryptocurrencies has contributed by exposing limitations and pitfalls of
   cryptocurrency system of payments, but also by proposing ways to overcome those. The
   above mentioned authors claim that the main three advantages of cryptocurrencies are
   anonymity, privacy and confidentiality. However, it is our opinion that the most important feature
   of cryptocurrency system of payments is transparency.
   One may ask why! The reason we believe that transparency is the key to success of
   cryptocurrency system of payments is the fact that in this system unlike the conventional bank
   system of payments where the client has information only about its own account. Whereas, in
   crypto-currency system of payments, everybody within the system can see the financial
   transactions of all other participants, thus, making the system extremely transparent. Hence,
   although not backed by a sovereign authority, it is the high level of transparency that makes
   cryptocurrencies acceptable for its users. However, some authors, such as Camoron (2016)
   claims that it is very unlikely that governments will allow the use of cryptocurrencies in the way
   that are currently operating. On the contrary claims the author, most of the governments are
   well positioned to prevent integration of cryptocurrencies within current formal financial
   institutions. Without these institutions, claims the author, the hurdles cryptocurrencies face to
   supplanting more legally privileged and centrally issued currencies appear to be
   insurmountable. In regard of exchange rate issues of cryptocurrencies against traditional
   currencies such as US Dollar, despite receiving extensive public attention, theoretical
   understanding is limited regarding the value of blockchain-based cryptocurrencies. In this regard
   Li & Wang have conducted a theory-driven empirical study of the Bitcoin exchange rate
   (against USD) determination, taking into consideration both technology and economic factors.
   According to above mentioned authors, in the short term, the Bitcoin exchange rate adjusts to
   changes in economic fundamentals and market conditions. The long-term Bitcoin exchange rate
   is more sensitive to economic fundamentals and less sensitive to technological factors. The
   latter authors furthermore claim that they have identified a significant impact of mining
   technology and a decreasing significance of mining difficulty in the Bitcoin exchange price
   determination.
   Some authors, such as Smalley have raised the issue of cryptocurrencies and tax, claiming
   that there is more to be done in this aspect since the taxability of cryptocurrency transactions 

Advantages and Disadvantages by Flamur Bunjaku, Olivera Gjorgieva-Trajkovska, Emilija MitevaKacarski