ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
742
CRYPTOCURRENCIES: POSSIBLE RISKS AND ITS PROSPECTS FOR
UZBEKISTAN
Siddikov Ulugbek Komiljonovich
Fourth grade student from the University of World Economy and Diplomacy under the
Ministry of Foreign Affairs of the Republic of Uzbekistan – International Economics and
Management 100192, Tashkent, Mustaqillik district, 54.
Uksiddikov2003@gmail.com
https://doi.org/10.5281/zenodo.10039989
Abstract.
The subject of the research is a relatively new instrument of the financial market.
The article uses the methods of comparative analysis, logical research, which made it possible to
evaluate the characteristics of cryptocurrencies and the mechanisms for their regulation. The
relevance of this research is confirmed by the growth of non- cash payment methods around the
globe, the adoption of a number of cryptocurrencies (such as the same Bitcoin) as a means of
payment at the level of large companies and entire countries.
Key words:
cryptocurrency, characteristics of cryptocurrencies, Bitcoin, non-cash
payments, debatable aspects of cryptocurrencies, payment system, regulation.
КРИПТОВАЛЮТЫ: ВОЗМОЖНЫЕ РИСКИ И ИХ ПЕРСПЕКТИВЫ ДЛЯ
УЗБЕКИСТАНА
Аннотация.
Предметом исследования является относительно новый инструмент
финансового рынка. В статье использованы методы сравнительного анализа, логического
исследования, которые позволили оценить характеристики криптовалют и механизмы их
регулирования. Актуальность данного исследования подтверждается ростом
безналичных способов оплаты по всему миру, принятием ряда криптовалют (таких как
тот же биткоин) в качестве платежного средства на уровне крупных компаний и целых
стран.
Ключевые слова:
криптовалюта, характеристики криптовалют, биткоин,
безналичные платежи, спорные аспекты криптовалют, платежная система,
регулирование.
The number of non-cash payment methods is growing every year. According to the Central
Bank of the Russian Federation, if in 2013 the share of non-cash payments was 13.5%, then by
2020 it has grown to 70.3%. According to the Central Bank of the Russian Federation, one resident
of Russia makes about 318 non-cash payments per year. For comparison, in the UK - 450, in the
USA - about 500 payments per person per year, and in Singapore more than 750. In 2021, Bitcoin
bypassed the PayPal electronic payment system in terms of the amount of money transferred.
On October 31, 2008, a person or group of people under the pseudonym Satoshi Nakamoto
posts his article Bitcoin: A Peer-to-Peer Electronic Cash System on the cryptographic forum
metzdowd.com. In 2009, Satoshi publishes the first Bitcoin software. From that moment on, the
whole world gets the opportunity to use the world's first electronic decentralized monetary system.
On January 3, 2009 at 18:15:05 GMT, the first block of Bitcoins was created with 50 BTC
(“genesis block”), it was generated by Satoshi himself. The hash of the first block contained the
headline of the British The Times article «Chancellor on brink of second bailout for banks». This
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
743
entry hides the reason for the creation of Bitcoin: 2008 - the collapse of the global economy and
the undermining of people's confidence in the banking system. It was then that the idea to create a
decentralized and completely anonymous currency appeared. According to Satoshi, the main
problem of traditional currencies is trust: “The main problem of conventional currency is the trust
necessary for its operation. You need to trust the Central Bank not to devalue the currency, but the
history of fiat currencies is full of cases of violation of this trust. Banks should be trusted to hold
our money, but they use it for high-risk loans without enough reserve. We must trust them with
our privacy to prevent hackers from stealing our personal data. Their huge spending makes
micropayments impossible.”
Many experts argue that behind the mysterious pseudonym Satoshi Nakamoto is not one
person, but a whole group of developers, since Bitcoin embodied many brilliant ideas that one
person could not write, but this protocol did not appear out of nowhere during the 2008 crisis -
Bitcoin is the result of 40 years of development and research. Therefore, its popularity is not an
accident, the demand for such technology appeared a very long time ago.
Consider the main prerequisites for the emergence of Bitcoin:
In 1974 Vinton Cerf and Bob Kahn published «A Protocol for Packet Network
Intercommunication» [1]. The paper describes the principle of operation of the TCP / IP protocol,
which underlies the modern global Internet. TCP/IP is a networking model for digital data
transmission that describes how data is transmitted from a source to a destination. Further, in 1976,
Diffie and Hellman published the work «New Directions in Cryptography» [2], in which the main
problem of cryptography of the 20th century was solved, the Diffie-Hellman protocol allows two
or more users to obtain a shared secret key, while using a communication channel that is not
protected from eavesdropping. Cryptography is a complex science that studies the use of
mathematics to encrypt/decrypt data. Rivers, Shamir and Adleman took an important step towards
the development of cryptocurrencies with the development of the RSA algorithm. RSA is an
acronym for the names of Rivers, Shamir, Adleman, the developers of this algorithm. RSA is a
public key cryptosystem (an encryption system in which the public key is transmitted over an
insecure channel and used to verify the electronic signature and encrypt a message) that is widely
used for secure data transmission. In 1980, Ralph Merkle published the work «Protocols for Public
Key Cryptosystems» [3]. This article outlined the public key distribution system that was outlined
earlier in the article by Diffie and Hellman. Ralph Merkle independently advanced the foundations
of public-key cryptography. Therefore, in 2002, Martin Hellman proposed that the «Diffie-
Hellman algorithm» be renamed the «Diffie-Hellman- Merkle algorithm», as «this small change
will help recognize Merkle's equal contribution to the invention of public-key cryptography». One
of the main features of cryptocurrencies is anonymity, in the 1983 work «Blind Signatures for
Untraceable Payments» [4]. David Chaum suggested using a blind signature to make money
anonymous. A blind signature is a signature scheme that allows a party to sign a message without
disclosing any information contained in the message to that party. An important work for the
crypto enthusiast community is «The Crypto-Anarchist's Manifesto» [5] by Timothy May, written
in 1988. This «Crypto-anarchist Manifesto» actually founded the crypto-anarchist movement.
Crypto-anarchism is a type of anarchism that calls for the protection of privacy and personal
freedom through cryptography. Timothy May, the author of this manifesto, partially inspired Nick
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
744
Szabo and Wei Dai to create the first bitcoin prototypes. In 1989, David Chaum developed the
DigiCash system, which was the first electronic cash system and used the blind signature
technology that David Chaum himself proposed 6 years ago. David founded DigiCash in 1989 and
entered into agreements with a number of banks whereby people could withdraw DigiCash digital
dollars from their accounts, just like cash dollars. But this system had a number of disadvantages:
it was centralized, closed, and far ahead of its time, since the first widespread web browser with a
graphical interface (NCSA Mosaic) appeared only in 1993. In 1991, Philip Zimmerman developed
PGP (Pretty Good Privacy) - encryption software that allows you to encrypt and digitally sign
information that is presented in electronic form. Eric Hughes, Timothy C May, and John Gilmour
founded a small networking group in late 1992 that met monthly in San Francisco. Political,
personal, social issues were often discussed, and then there was a need to maintain anonymity.
Then they started using remailers (servers that send letters from the sender to the address specified
by him), and thus the letter reached the recipient without information about the sender. The group
was humorously nicknamed the Cypherpunks. The Cypherpunks are an informal group of people
interested in creating, developing and spreading strong cryptography to preserve anonymity. A
few months after the creation of the cypherpunk group, in 1993, Eric Hughes published their
manifesto. In it, the author explains the need for online privacy, focusing on transaction security.
Further, in 1994, CyberCash was founded by Daniel K. Lynch, William N. Melton, Steve Crocker,
and Bruce G. Wilson to provide software for consumers and merchants. Consumers - software for
online wallets, and sellers - software for accepting payments made by credit cards. Also in 1994,
Timothy May released «The Cyphernomicon». This document was an email newsletter for
cypherpunks in the format of an FAQ (Frequently Asked Questions). It touches on some of the
ideas and implications of crypto-anarchism. «This FAQ can help fill in some of the gaps about
who we are, what motivates us and where we are going. And, perhaps, to give useful knowledge
about cryptography, remailers, anonymity, digital money and other interesting things» writes
Timothy May. In 1996, E-gold appears - a digital currency that allows users to open an electronic
account denominated in gold with the ability to instantly transfer the value to other accounts.
Electronic gold is a means of payment for non-cash payments made via the Internet. Further, in
1996, «How to make a mint the cryptographic of anonymous electronic cash» was published [6].
This paper, which is a report from the Department of Cryptography of the Office of Information
Security Research and Technology of the US National Security Agency, lays out the basics of a
system that vaguely resembles the concept of Bitcoin. In the paper, the authors argue that secure
financial transactions can be made possible by a decentralized web. A decentralized network (peer-
to-peer network, or peer-to-peer network) is a computer network based on the equality of
participants, in which nodes (clients) communicate with each other without a central element.
Also, the paper outlines four criteria that this network must meet:
1) confidentiality;
2) user identification;
3) message integrity;
4) impossibility to withdraw the transaction.
A little later, in 1997, Adam Black proposed the HashCash system. HashCash is a proof-
of-work system that is used to limit email spam and reduce DoS attacks, and has recently been
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
745
used in cryptocurrencies. Proof-of-Work (proof of work) is an algorithm for protecting network
systems from abuse of services (for example, DoS attacks, spam mailings, etc.), the essence of
which is the need for the client to perform certain rather complex and lengthy work (tasks), the
result of which can be easily and quickly checked on the server side (these tasks are not intended
for humans, they are solved by a computer and this requires large computing power). In 1997,
Nick Szabo publishes «Formalizing and Securing Relationships on Public Networks» [7]. In this
paper, Nick Szabo proposed using smart contracts to formalize and protect relationships in
computer networks. A smart contract is a computer algorithm that monitors and ensures the
implementation of agreements concluded between two or more parties, the result of which, when
certain actions are performed, are certain actions. Conditions required for smart contracts to work:
1) application of electronic signature methods using private and public keys;
2) the presence of decentralized databases in which contracts are fixed, which are trusted by
all signatories (parties) of a smart contract, and whose operation completely eliminates the human
factor (for example, blockchain);
3) decentralization of the smart contract execution environment, that is, the presence of a
private decentralized service that fixes smart contracts (for example, Ethereum).
4) authenticity of the source of electronic data;
5) the subject of the contract and the availability of a sufficient amount of funds required to
execute the smart contract.
The following year, Nick Szabo presents Bit-gold. Bit gold (digital gold) is a decentralized
digital currency algorithm developed by Nick Szabo. The concept has not been implemented, but
it is the direct predecessor of Bitcoin: in this concept, like in Bitcoin, the Proof-of-Work algorithm
is used, which uses computing resources to solve some cryptographic problems. The results of
these tasks are then processed in a decentralized network. Thus, a chain of hashes is created (a
hash is a cipher in which a certain word, message or data is encoded using letters and numbers),
which connects the solution of the last cryptographic problem with the next one (similar to
blockchain in Bitcoin). In 1998, Wei Dai introduces B-money, a project of a decentralized payment
system that uses cryptographic algorithms in its work.
The protocols of this project describe the aspects on which Bitcoin is based. For example,
the subjects of b-money are anonymous «digital pseudonyms» unrelated to the identities of their
owners. In fact, Wei Dai came up with a concept very similar to the modern blockchain: users
perform certain computational work (to keep the system running) for which they receive some
reward (mining in Bitcoin). The completed work is recorded in a collective journal and can be
checked by other participants. The creator of Bitcoin himself wrote: «Bitcoin is an implementation
of Wei Dai’s b-money proposal and Nick Szabo’s Bitgold proposal». In 1999, Timothy Maxwell
Keizer publishes «Computer-implemented securities trading system».
This paper presents a computer financial management system that allows you to trade
securities through the network using virtual currency. The accumulated virtual currency can be
converted into other currencies. In 2001, the rapid development of virtual currencies and virtual
markets in video games begins. Game currency is a special case of electronic money, which is
used to purchase and sell virtual goods in virtual worlds. In 2001, Bram Cohen launches
BitTorrent, a decentralized network protocol for exchanging files over the Internet.
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
746
Satoshi Nakamoto wrote: «In order for the coins transferred for proof of work to have
value, they must have a monetary value. To have monetary value, they must be transferred within
a very large network - for example, a file trading network like bittorrent». Tom Cook of Facebook's
systems engineering team said about BitTorrent: «It's 'super perfect' fast and it allows us to
alleviate a lot of the scaling issues we had in the past when it took forever to push code to web
servers, before you could even download and run it». Hal Finney on August 16, 2004 in his letter
to the cypherpunk forum «Reusable Proof-of-Work» invited everyone to try out his new idea based
on hashcash. It was a reusable proof of work that was used to organize an e-currency. Bitcoin uses
proof-of-work to complicate the problem of double spending.
Double spending is a risk that exists in an electronic money system, in which it is possible
to re-sell the same assets in the same time interval. In centralized systems, this problem is solved
by a certain entity or organization that monitors the release and circulation of new units. In a
decentralized system, everything is much more complicated. In Bitcoin, Satoshi proposed the
creation of a unique database - the blockchain. Blockchain is a database that contains a continuous
chain of blocks reflecting all records of transactions. In the blockchain, unlike other databases, you
can only add new blocks, and you cannot delete or change old ones. In 2006, Liberty Reserve, a
centralized electronic payment system, appeared on the market, which positioned itself as «the
oldest, most secure and popular payment processor serving millions of people around the world».
This system allowed registered users to make money transfers to other users using only their name,
date of birth and email address.
The system itself used Liberty Reserve Dollars and Liberty Reserve Euros, which were
pegged to the value of the dollar and euro, respectively, as well as a currency pegged to ounces of
gold. The system was popular not only among currency brokers and multi-level marketing
companies, but also among the representatives of the criminal world (due to the fact that no identity
verification was carried out in this service), so in 2013 Liberty Reserve was closed by US federal
prosecutors. And, finally, in 2008, Bitcoin appears - a decentralized payment system created by
analogy with digital wallets and bank accounts, using the unit of the same name to record
transactions.
Thus, a large number of steps were taken for the appearance of Bitcoin in 2008. Initially,
Bitcoin was mainly used by computer scientists. At that time, Bitcoin did not have a specific price.
Its value was determined by the cost of electricity to create new blocks in the blockchain.
On October 5, 2009, the first price for Bitcoin was set on the New Liberty Standard
exchange, 1 $ = 1309.03 BTC, that is, 1 BTC = 0.000764 $. 12 years later, as of 2021, the price of
Bitcoin on the Binance cryptocurrency exchange is about $51,900. That is, over 12 years, the value
of the first cryptocurrency has increased by 67,931,937 times. On May 22, 2010, the first purchase
was made using Bitcoin. American programmer Laszlo Heinitz bought two pizzas for 10,000 BTC,
at that time their cost was about $25, and after 3 years the cost of 10,000 bitcoins was about $9
million.
In 2010-2011, the first exchanges appeared on the Internet, where you could exchange
bitcoins for real currency. In the spring of 2011, bitcoin reached parity with the US dollar. At the
same time, analogues of bitcoin began to appear, differing from it in encryption methods or other
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
747
features. Among them are litecoin, etherium («ether»), ripple, dogecoin. In 2017, bitcoin «split»
into regular bitcoin and, according to the developers, more reliable bitcoin cash.
Since about 2011, bitcoin, due to the anonymity of transfers, has been used by people
associated with the drug trade and other illegal businesses. Since 2013, bitcoins can be used to pay
for services and goods in some online stores, hotel booking services. However, already in 2017,
services or manufacturers that previously accepted this currency for payment began to refuse it
due to sharp fluctuations in its value.
Interest in cryptocurrency is fueled by a possible increase in its value due to speculation. If
at the beginning of 2016 the rate of one bitcoin was $400, then by the end of 2017 it reached almost
$20 thousand per unit. Then the cost of bitcoin dropped to $3.5 thousand, but at the end of 2020,
growth began again: this cryptocurrency reached $50-60 thousand in price.
What is the value of Bitcoin for the economy? In 1912, Ludwik von Mises, a member of
the Austrian school of economics, wrote in his famous book «The Theory of Money and Credit»:
«It is impossible to understand the meaning of the idea of sound money unless you realize that it
was designed as a tool to protect civil liberties from despotic intrusions by governments». This
quote from the last century describes one of the most important advantages of Bitcoin -
decentralization. Bitcoin is free from any control by any state. Essentially, cryptocurrencies are
meaningless without decentralization as they can be replaced by centralized alternatives. For
example, gold can be used to store value, Visa and MasterCard can be used to transfer money, the
securities market can be used to invest, and cash can be used to anonymize. The ability to use all
these benefits without intermediaries and control is a key advantage of cryptocurrencies.
Blockchain technology is one of the most secure networks for exchanging information.
Therefore, the next property of cryptocurrencies is their security. So far, no one has been
able to hack the Bitcoin blockchain. Hackers have been trying for at least 5 years to break into a
wallet that holds more than 69,000 bitcoins, or about $700 million in cryptocurrency, said the CTO
of Hudson Rock, a company specializing in combating cybercrime. Also, Bitcoin has a limited
coin supply of 21 million BTC, unlike the dollar or other fiat currencies that are non-stop printed
by governments and the last Bitcoin, according to EMCD CEO Michael Jerlis, is around October
8, 2140.
Thus, Bitcoin has absorbed all the positive qualities of electronic currencies and
supplemented them with new ones, its development has just begun and there is no doubt in its
further growth due to high demand and limited supply.\
Nowadays, operations with cryptocurrency, in particular with bitcoin as its most common
variety, attract the attention of many people on the planet, not only professionals, but also ordinary
citizens. Some want to make money and are actively engaged in it, others are trying to understand
what it is and what is its secret.
Let's dwell on the characteristics of cryptocurrencies. This topic is mainly dealt with by
foreign authors (see, for example, [8, 13–20] and many others). In our country, this topic is also
of great interest to researchers. Various authors offer a wide variety of definitions of
cryptocurrencies. Some define cryptocurrencies as «... digital currencies, the emission and
accounting of which are based on cryptographic methods» [9]; others - as «...electronic means of
payment, the accounting of transactions with which occurs in a decentralized manner on the basis
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
748
of pre-established rules» [10]; the third - as a new form of electronic money [11]; fourth - as one
of the most striking forms of «new» money [12]. Someone believes that cryptocurrency is «... the
destiny of brokers, banks, who can’t wait until they are allowed (legally) to this instrument» [21].
Well-known investor Warren Buffett stated in an interview that Bitcoin is a «mirage».
Bitcoin and most other cryptocurrencies are not tied to other national currencies or assets,
not backed by anything other than the trust of its holders. The rate of cryptocurrency is set on
virtual exchanges that carry out operations to exchange it for real money. In this regard, the
evaluation of cryptocurrencies as a high-risk asset and a potential «financial pyramid» is
widespread. For example, in 2017, the head of the largest American bank JP Morgan Chase, Jamie
Dimon, called cryptocurrencies a «fraud», comparing them with the Dutch «tulip fever» (1637-
1638) and promising to fire any employee of his bank who decides to trade cryptocurrencies.
Despite the variety of definitions and opinions, it is obvious that cryptocurrency is a new
instrument of the financial market.
The development of money circulation in the world has gone through stages from the use
of natural money to metal, paper, credit and modern electronic. Moreover, the basic theory of
money is based on the labor theory of value (the cost of goods and services depends on the amount
of human labor invested in them), while the technology on which cryptocurrencies are based -
blockchain, assigns the value of a combination of computer power and stored energy [22].
As of January 20, 2022, the capitalization (total value of all available on the market) of
bitcoin, the most popular cryptocurrency, is $796 billion, the current rate is $42 thousand per unit.
In total, there are about 2-3 thousand various cryptocurrencies in the world. The most popular also
include:
- etherium, capitalization - $374 billion, unit cost - $3.1 thousand;
- BNB, capitalization - $78.9 billion, unit value - $475;
- tether, capitalization - $78.3 billion, fixed price - $1;
- USD Coin, capitalization - $46 billion, fixed price - $1.
Let's evaluate the cryptocurrency in terms of the following characteristics:
• structures of cryptocurrencies;
• user communities;
• gender component of the users;
• age characteristics of users;
• used browsers;
• type of device used.
From the point of view of the structure, the cryptocurrency looks like this (picture).
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
749
The structure of cryptocurrencies, in % as of February 18, 2018 [23] Obviously, bitcoin is still
the most common type of cryptocurrency.
The structure of the community of bitcoin users (in percent) is as follows [Ibid.]:
financial services, investment services - 8.14;
software/design, 3.72;
financial, banking services - 3.30;
employment center - 2.76;
consumer electronics/mobile phones, 2.70;
computers and peripheral devices - 2.65;
dating service - 2.14;
travel/hotels – 2.12;
real estate/residential property – 1.72;
software/business - 1.71.
From the point of view of the gender component among bitcoin users, the proportion of
men prevails and amounts to 96.57%, while the proportion of women is only 3.43% [22].
No
No
less interesting is the age characteristic of cryptocurrency owners [Ibid.] (table).
Age structure of cryptocurrency users
Age, years
proportion, %
18–24
8,36
25–34
45,71
35–44
30,62
45–54
12,30
55–64
1,83
65+
1,19
Total
100,0
Obviously, the most active are two groups of the population aged 24 to 34 and 35 to 44
years, both groups account for 76.33%.
If we consider cryptocurrencies from the perspective of browser usage, the distribution is
as follows:
• Chrome (62,43 %);
• Firefox (17,86 %);
• Safari (14,54 %);
• Internet Explorer – 1,77 %;
• Opera – 1,31 %;
• the share of other browsers (Edge, Ya browser, Android browser, Blackberry) is about 2%
in total [Ibid.].
If we consider which device types participants use, then cryptocurrency transactions are
mainly carried out from computers, their share in the total mass of device types is 66.75%, the
volume of transactions made from mobile phones is 28% and only 5.25% of transactions are
performed through the use of a tablet [Ibid.].
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
750
Let us dwell on an important aspect of the functioning of cryptocurrencies - its state
regulation [24]. At the end of 2013, the growth in the volume of transactions with bitcoins,
including those serving illegal business, attracted the attention of the authorities of a number of
countries and raised the issue of regulating the use of virtual currencies. In most countries,
including the EU and the US, the circulation of bitcoins is not prohibited or regulated by law.
However, the authorities of these countries proposed to strengthen control over dubious operations
performed using cryptocurrencies or to impose taxes on any transactions using them.
The first countries where bitcoins were recognized as completely legal money were Japan
and Belarus in 2017, where this cryptocurrency can be legally paid for goods and services.
Currently, the laws of different countries treat bitcoins and their analogues differently. As
a rule, registered financial institutions are prohibited from conducting transactions related to
cryptocurrencies. Moreover, bitcoins and analogues are not recognized as a full-fledged currency,
but as a “virtual asset” subject to taxation.
The lack of regulation and signs of a «pyramid» are not the only complaints about
cryptocurrencies. According to Digiconomist.net, the world's current supply of bitcoin has an
annual electricity cost of 200 billion kWh, roughly equivalent to the annual electricity consumption
of Turkey or Thailand. Also, the spread of mining caused a speculative growth in computer
components - primarily video cards, the chips of which are most suitable for «mining»
cryptocurrencies.
From the position of regulation, three groups of states are conditionally distinguished:
1) states in which cryptocurrencies have an official status (goods, financial assets, means of
payment and other instruments);
2) countries that do not regulate cryptocurrencies, but do not punish their users;
3) transactions with cryptocurrencies are prohibited at the state level.
The first group of states includes about forty countries, including Australia, Argentina,
Great Britain, Germany, Denmark, Canada, USA, Saudi Arabia, Singapore, France, Switzerland,
Sweden, South Korea, Japan, etc.
So, Argentina is one of the leading countries in the use of cryptocurrencies. In July 2014,
the UIF department allowed all financial institutions to conduct transactions with bitcoins and
other virtual currencies and obliged them to inform about transactions with cryptocurrencies.
In the US, the legal regulation of cryptocurrency is limited. In 2014, the Internal Revenue
Service indicated that virtual currency is treated as property for tax purposes.
However, operations for the issuance of cryptocurrencies in some cases are considered as
the placement of securities, in which case the same requirements for cryptocurrencies apply as for
traditional securities.
In Switzerland, cryptocurrencies are treated as assets, and transactions with them do not
require special permits, but the purchase and sale of cryptocurrencies on a commercial basis and
on existing trading floors is subject to licensing.
The Swiss Financial Market Supervisory Authority (FINMA) classifies tokens into three
types: as a means of payment, as an asset, and as a benefit [25].
In Japan, since April 2017, cryptocurrency has been recognized as legal tender.
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
751
In Singapore, cryptocurrency is viewed as an asset, not a means of payment. The Monetary
Authority of Singapore (MAS) has issued a number of documents regulating the public offering
and trading of digital assets (tokens).
At the end of January 2018, the Financial Services Commission of South Korea (FSC -
Financial Services Commission) introduced a complete ban on anonymous trading in electronic
currencies in order to warn the public about potential risks. In particular, traders working with
cryptocurrency are recommended to use their real data and bank accounts [26].
Venezuela became the first country to launch on February 20, 2018 the sale of its own
cryptocurrency – Petro, backed by its own reserves and natural resources, with a total release
planned for 100 million units of Petro. This step was taken largely in the hope of potential foreign
investment - a necessary source of financing for the national economy. It differs from other already
known varieties of cryptocurrencies by providing a real asset in the form of 5 billion barrels of oil.
European Securities and Markets Authority (ESMA) in cooperation with the European
Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority
(EIOPA) in February 2018. warned the public about the high risks of investing in cryptocurrencies
[27]. Financial regulators cannot guarantee the value of cryptocurrencies, and investors, investing
in cryptocurrencies, expose the invested funds to the corresponding risks.
The Russian Federation belongs to the second group of countries indicated above. In
Russia, on October 10, 2017, at a meeting with the heads of relevant ministries and departments,
Russian President Vladimir Putin expressed the opinion that it is necessary to establish the
circulation of cryptocurrency in the country without creating unnecessary barriers. At the same
time, he noted the risks of its use: «the possibility of laundering capital obtained by criminal means,
tax evasion and even financing of terrorism and, of course, the spread of fraudulent schemes». As
for the regulation of cryptocurrencies, there is no legislative certainty in our country yet, although
certain efforts have been made by the authorities in this area for the past two years. Following the
meeting, Vladimir Putin instructed the Russian government to create mechanisms for regulating
cryptocurrencies and mining by July 1, 2018. So, at the end of January 2018, the Ministry of
Finance of the Russian Federation prepared its own bill “On Digital
Financial Assets”, which provides for the sale of cryptocurrencies at organized auctions.
So, in offshore zones it is planned that exchangers and operators for the purchase and sale of digital
money will operate.
With regard to the definition of cryptocurrencies, it is assumed that it will be a digital good
that will be produced as part of mining and can be a store of value. In the current absence of
regulations and guarantees to protect buyers of cryptocurrency, the risk of unscrupulous players
entering the market remains.
In China, since 2013, there has been a ban on cryptocurrency transactions for financial
institutions. In 2017, the Chinese authorities closed all crypto exchanges operating in the country.
In 2018, mining was formally banned, and in 2021, a complete ban on the exchange of
cryptocurrencies was introduced.
In Thailand, cryptocurrencies are not recognized as legal tender until a law is passed to
regulate them. Therefore, the Central Bank recommended that banks and financial institutions
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
752
refrain from dealing with cryptocurrency in terms of trade and investment. But these
recommendations do not apply to online exchanges.
A number of states prohibit the use of cryptocurrencies by both individuals and legal
entities. Among them are Egypt (the ban was introduced in 2018, confirmed in 2020), Nepal
(2017), Bolivia (2014), Algeria (2018), Bangladesh (2017). Qatar and Bahrain prohibit investing
in cryptocurrencies in their countries, but do not prohibit their citizens abroad from doing so.
Since 2017, Vietnam has banned the use of bitcoin as a currency, for which there is a large
fine (up to $8.7 thousand), but it does not regulate the purchase of cryptocurrencies as a virtual
asset.
In 2021, the authorities of Turkey and India took steps to limit the circulation of
cryptocurrencies.
Among the CIS countries, most cryptocurrencies are mined in Kazakhstan - according to
the University of Cambridge, the republic ranks second in the world in bitcoin mining after the
United States. A serious blow to the production of cryptocurrency in Kazakhstan was dealt during
the riots in January. Against this background, a fall of bitcoin by more than 4% was recorded.
Since December 2017, cryptocurrencies have been legalized in Belarus. The industry was
temporarily exempted from taxes, citizens can not only own digital money, but also change, buy
and sell national and foreign currencies without declaring it. Alyaksandr Lukashenka even urged
to mine more actively instead of «squirming around the Poles or the Germans to pick
strawberries».
On July 3, 2018, President of Uzbekistan Shavkat Mirziyoyev signed a resolution on
measures to develop the digital economy, including licensing activities in the field of crypto assets
circulation. All transactions with cryptocurrency are carried out on a crypto exchange. The first
was opened by the South Korean Kobea Group in January 2020. Citizens are allowed to enter into
transactions exclusively for the sale of crypto assets and tokens.
They are trying to legalize the use of cryptocurrencies in Ukraine. On September 8, 2021,
the Rada adopted a law on virtual assets, according to which cryptocurrencies are not a means of
payment, but acquiring operations are allowed, however, Volodymyr Zelenskyy returned the law
for revision. He did not like that the document provides for the creation of a div to regulate the
virtual asset market, as this would require significant costs. Zelensky proposed to attribute these
functions to the competence of the National Commission for Securities and the Stock Market.
Obviously, until the cryptocurrency is recognized by the state, there are doubts that it will
enjoy full confidence. In the future, cryptocurrencies will undoubtedly be regulated at the
international level, with an emphasis on preventing the use of digital assets for money laundering
and illegal financial transactions.
As a result of the research, it was concluded that the main difference between
cryptocurrencies and other payment systems is the transparency of its transaction, security,
anonymity and lack of censorship, since its work is supported by information technology, and not
by the government or the central bank. Also, it was revealed that behind the creation of Bitcoin
(the first cryptocurrency) there are a large number of scientists and enthusiasts who created the
prerequisites for its appearance in 2008 for 40 years.
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
753
The debatable issues of the essence of cryptocurrency are investigated. In the scientific and
practical environment, cryptocurrencies are considered as digital currencies, electronic means of
payment, new forms of electronic money, «new money» and even sometimes as a mirage. An
assessment of the current state of cryptocurrencies in various aspects (structure, user communities,
gender and age characteristics of users, device-type and browser usage) is given. An assessment
was made of the mechanism for regulating cryptocurrencies in different countries– both those that
recognize this financial market instrument and actively regulate it, and those that reject and tolerate
it, but do not have a regulatory framework for its use.
It is obvious that cryptocurrencies is a relatively new instrument of the financial market,
but its value does not depend on the amount of labor invested, as is traditionally the case for
ordinary goods and services. An assessment of the structure of the cryptocurrency showed that
Bitcoin is still its most common type, although Etherium is also increasing its volumes. Bitcoin
users are dominated by men in the age group from 24 to 44 years.
An important and significant aspect of the functionality of cryptocurrencies is their
regulation. Cryptocurrency has an official status (goods, financial asset, means of payment or other
instrument) in forty countries. Venezuela became the first country to launch its own
cryptocurrency, Petro, for sale, a distinctive feature of which is its real security. Petro became the
first official state cryptocurrency. It was launched on February 20, 2018 by the Venezuelan
authorities due to the economic crisis and hyperinflation of the official currency - the bolivar. The
cost of the petro was pegged to the price of a barrel of Venezuelan oil, but this cryptocurrency was
not widely used either in Venezuela or abroad. As part of the Uzbek regulation of the round of
government certainty, however, until the cryptocurrency is recognized as the owner of the status,
there is an opinion that it will enjoy full confidence. In perspective it seems certain that
cryptocurrencies will be regulated internationally, with an emphasis on preventing the use of
digital assets for money laundering and illegal financial transactions.
REFERENCES
1.
Cerf V. G., Kahn R. E. A Protocol for Packet Network Intercommunication. IEEE. 1974. T.
22. №5. С. 637-648.
2.
Deffie W., Hellman M. E. New Directions in Cryptography. IEEE Transactions on
information theory. 1976. T. 22 №6. С. 644-654.
3.
Merkle R. C. Protocols for Public Key Cryptosystems. IEEE Symposium on Security and
Privacy. 1980. C. 122-134.
4.
Chaum D. Blind Signatures for Untraceable Payments. Advances in Cryptology Proceedings
of Crypto. 1983. T. 82. №3. С. 199-203.
5.
May T. C. The Crypto-Anarchist‘s Manifesto. 1988.
6.
Law L., Sabett S., Solinas J. How to make a mint the cryptographic of anonymous electronic
cash. The American University Law Review. 1996. T. 46. C. 1131-1162.
7.
Szabo N. Formalizing and Securing Relationships on Public Networks. First Monday. 1997.
T. 2 № 9.
8.
Coin Dance. Bitcoin Statistics [Electronic resource]. –- URL: https://coin.dance/stats
(accessed: 27.08.2018).
ISSN:
2181-3906
2023
International scientific journal
«MODERN SCIENCE АND RESEARCH»
VOLUME 2 / ISSUE 10 / UIF:8.2 / MODERNSCIENCE.UZ
754
9.
Марамыгин М.С., Прокофьева Е.Н., Маркова А.А. Экономическая природа и проблемы
использования виртуальных денег (криптовалют) // Известия Ур-ГЭУ. – 2015. – № 2. –
С. 37–43.
10.
Кузнецов В.А., Якубов А.В. О подходах в международном регулировании криптовалют
(Bitcoin) в отдельных иностранных юрисдикциях // Деньги и кредит. – 2016. – № 3. – С.
20–29.
11.
Степанова Д.И., Николаева Т.Е., Иволгина Н.В. Особенности организации и
направления развития криптовалютных платежных систем // Финансы и кредит. – 2016.
– № 10. – С. 33.
12.
Глухов В.В., Рожков Ю.В. Традиционная теория финансов как препятствие к развитию
криптовалют // Сибирская финансовая школа. 2016. – № 6. – С. 98–101.
13.
Frisby D. Bitcoin: the future of money? – [S. l.]: Random House, 2014.
14.
McKinnom J.D., Tracy R. IRS says bitcoin is property, not currency // Wall Street Journal. –
2014. – 25 March.
15.
Phillips K.D. The ultimate bitcoin business guide: for entrepreneurs and business advisors. –
North Charleston: CreateSpace Independent Publishing Platform, 2015. – 330 p.
16.
Vigna P., Casey M.J. The age of cryptocurrency: how bitcoin and digital money are
challenging the global economic order. – London: Bodley Head, 2015. – 384 p.
17.
Duggal P. Blockchain contracts and cyberlaw. – New Delhi: Saakshar Law Publications,
2015. – 39 p.
18.
Halpern S. Bitcoin mania // New York Review of Books. – 2018. – Vol. 65, N 1 (18 January).
19.
Dendrinou V. EU cautions banks over virtual currencies // Wall Street Journal. – 2014. – 4
July.
20.
Jenkins Y. Bitcoin: money without borders. – Oxford: Ethical Financial Services Ltd, 2014. –
51 p.
21.
Поляков И. Блокчейн и инфраструктура // Рынок ценных бумаг. – 2017. – № 4. – С. 24.
22.
Михайлов
А.Ю. Теория
оценки
стоимости
криптоактивов
//
Финансовая аналитика: проблемы и решения. – 2017. – Т .10, вып. 6.С. 691–700.
23.
Nelson A. Swiss regulator gives clear guidelines for launching ICOs // Financial Times. –
2018. – 16 February.
24.
Tapscott D., Tapscott A. Blockchain revolution: how the technology behind bitcoin is
changing money, business, and the world. – New York: Penguin, 2016. – 324 p.
25.
Arieff A. The internet of way too many things // The New York Times. – 2015. – 5 September.
26.
Financial measures to curb speculation in cryptocurrency trading. Press Release: 23 January
2018 [Electronic resource] / Financial Services Commission. -
URL:
https://www.fsc.go.kr/downManager?bbsid=BBS0048&no=123388 (accessed: 27.08.2018).
27.
February. – URL: https://www.esma.europa.eu/press-news/esma- news/esas-warnconsumers-
risks-in-buying-virtual-currencies (accessed: 27.08.2018).
