Anyone with anything to do with business can’t avoid cryptocurrencies: Blockchain technology has enjoyed a rapid career since the first Bitcoin was mined in 2009. A white paper for managers, supervisory boards and auditors explains the most important basics.
Anyone who wants to learn more about the basics, possibilities and risks of cryptocurrencies such as Bitcoin, Ethereum or Binance Coin should consult the white paper that the Institute for Public Auditors in Germany (IDW) recently published. It is aimed at managers, supervisory boards, auditors and more generally people interested in crypto-currencies or blockchain technology.
According to this, 20,000 cryptocurrencies exist today, 13 years after the first Bitcoin was mined. The market capitalization of cryptocurrencies was around 900 billion US dollars in the second quarter of 2022. A rapid rise. The authors point out that some states already recognize Bitcoin as legal tender and that more and more companies are holding and transferring cryptocurrencies as investments.
This is what makes cryptocurrencies special
Cryptocurrencies were already different from traditional means of payment in that they are not issued or guaranteed by any central bank or public body, the report notes. These are virtual means of payment based on blockchain or distributed ledger technology: credit can be created using computer codes and transferred to other market participants.
Moreover, Bitcoin and Co. has no intrinsic value – that is why their price is determined solely by supply and demand. This leads to extreme fluctuations: in October 2020, one Bitcoin cost 11,000 euros, in November 2021 around 58,000 euros. Currently, in July 2022, its value is around 20,700 euros.
Cryptocurrencies have these risks
The legal problem with cryptocurrencies is that there is no generally applicable legal term so far. And without a definition of the judiciary, there is no legal classification. Thus, no one can legally trade with cryptocurrencies. The authors therefore recommend that the legislator harden. They expect the regulation of crypto assets to progress at the EU level to ensure financial stability, as shown by the recent EU agreement on the Mica Directive.
We must also look at data protection: all cryptographic transactions are public and permanently visible to everyone – this is due to blockchain technology. And these are hacker attacks, as huge amounts of capital flow through the crypto network.
Also significant is the fact that Bitcoin, Ethereum and Co. mining consumes a disproportionate amount of electricity. Cryptocurrencies are therefore not sustainable – on the contrary. “Miner” is an impertinence for the environment.
It’s still in the crypto report
In the white paper, the authors also present the entire cryptocurrency ecosystem: producers, trading platforms, users, currencies. It also discusses the impact of cryptocurrency on the auditing, assurance and advisory services provided by auditors.
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