Need 1600 words  Dissertation/research method on the impact of Cryptocurrencies in the UAE. The format will be:

1) Background

2) Research Question, Aim and Objectives

3) Potential impact of the dissertation

4) Theoretical Context 

5) References

I have uploaded sample past papers, so please check them to understand the format of the essay. I have also uploaded some dissertation on cryptocurrencies in the Uae to help you out.

HERIOT-WATT UNIVERSITY DUBAI CAMPUS

Research Proposal

Title of Course and Code:

Research Methods: C39RE

Course Lecturer:

Dr. Esinath Ndiweni

Title of Course Work:

The investment potential of art markets

Name of Student

Registration No:

H00178570

Program title

BA Accountancy & Finance

Word Count:

1976 words

1) Dissertation Title

The investment potential of art markets

2) Background

Art in its various forms has been an essential part of human culture since prehistoric times. Nevertheless, a purposeful usage of artworks as means of investment is a relatively recent phenomenon that has started to attract more attention of investors as well as academics. This is partially fueled by the increasing need for profitable and diversified investments in the world where, some argue, there is more money to invest than attractive opportunities to absorb it. Despite a number of considerable articles published on the topic in the last 30 years, there is still a lack of evidence especially when comparing to the literature on other investment assets such as stocks or bonds. This might also be one of the reasons for misbeliefs about art markets that sometimes result to suboptimal investment decisions by unsophisticated individuals and companies.

The following dissertation contributes to the existing research on the topic by presenting results that to some extent are more relevant than those of a number of previous papers. First, the samples that it uses are more appropriate from the timing perspective as they capture the most recent years. Second, it pays sufficient attention on the forms of investment in art other than purchasing and selling individual artworks on auctions. This as well as some other features of this study make it potentially beneficial for different groups of readers including current and future investors.

3) Research Question, Aim and Objectives

3.1 Research Question

Can art be considered as suitable asset class for investment purposes?

3.2 Research Aim and Objectives

This dissertation aims to research and analyze the financial implications of investing in various artworks in order assess their potential attractiveness for investors.

The research addresses the following objectives:

1. To investigate the returns and risks of various forms of investing in art;

2. To compare risk-return profiles of artworks to those of other investment options;

3. To study the possibility of using art as a suitable diversification or hedging tool.

4) Potential impact of the dissertation

Although the majority of empirical evidence does not find investing in art to be more profitable than investing in other assets, additional research on the topic might still yield to a different result. First, due to limitations of some studies, poor risk-return figures of artworks might not be the case for some categories of art such as particular artistic movements, subject matters, schools or periods. In other words, a detailed research might still find the attractiveness of certain types of art as means of investment. Second, despite generally lower expected returns, art might still be worth investing in if it proves to be useful for diversification purposes. Correlation among international markets has increased from 50% – 60% in 1990s to over 90% after 2008, thus reducing the benefits of international diversification (Forbes, 2017). In the light of this as well as decreased effectiveness of diversification among different asset classes, finding the diversification potential of art markets becomes a more relevant field of investigation.

The findings of this dissertation can potentially benefit all readers who are interested in the topics of investments or art and especially those who might become potential investors in artworks but have currently a lack of understanding. There are still widespread misbeliefs about the art markets that usually result to overestimation of potential returns and underestimations of related risks. An additional recently published paper showing a more realistic picture can definitely serve as a good warning for unsophisticated potential investors. On the other hand, obtaining a result that is contrary to the majority of empirical evidence would also be an interesting experience for any researcher. Findings showing, at least to a certain extent, the attractiveness of investing in artworks could not only encourage further research than the opposite results would but could potentially benefit different individuals and organisations including art investors, collectors, auction houses and art funds.

A potential feature of this dissertation that is not present in many similar studies is taking into consideration foreign exchange rates when calculating the returns of investing in artworks. Doing this has become more relevant in the recent decade not only due to higher exchange fluctuations of USD, EUR and GPB but also due to increasing weight of China in art markets. Another characteristic of the research is higher focus on structured opportunities of investment in art as many of the previous papers considered simple transactions such as buying and selling artworks on auctions. The financial attractiveness of indirect investments in art through art funds is still a fruitful field of research. There are also art related derivatives that have already attracted attention of some scholars. Examples include an article by Kraeussl and Wiehenkamp (2012) who studied the implications of a call option on art index that would allow investors to hedge their exposure to art market.

5) Theoretical Context

A large number of papers that study art as an investment possesses similar characteristics. For instance, majority of academics use art indices either in the form of readily available ones or constructed by themselves. Some other similarities in research tools and samples can also be seen in a number of studies. A comparison between art and other means of investments often includes stocks, bonds as well as their sub-categories such as small-cap or large-cap stocks and government or corporate bonds. In addition, many studies on the topic focused not on art as a whole (that would be difficult and unreasonable to do), but on paintings, which represented around 80 percent of total auction turnover (Vosilov 2015). Nevertheless, common features of many papers do not preclude them from presenting a variety of interesting findings.

One of the most cited paper on the topic written by Baumol (1986) demonstrates that investing in paintings gave almost 2% less returns than investing in government securities. The real expected returns would be even lower as the research did take into account some related costs such as maintenance costs and sales commissions. Moreover, author concluded that investing in paintings has a significant risk. Frey and Pommerehne (1989) found similar results in their study and showed that investing in paintings is riskier but less profitable than investing in financial assets. A more recent paper by Worthington & Higgs (2003) considers different paintings markets such as Old Masters, Contemporary European, Impressionists, among others and presents similar evidence on lower returns but higher risks of investment. The authors assume though that it might still be possible to use some paintings markets for diversification purposes.

Some authors, rather than primarily investigating whether investing in art is better than investing in other assets, have also focused on using art together with alternatives in order to diversify an investment portfolio. Goetzmann (1993) states that due to strong correlation between demand for art and equity markets performance, art does not serve as an appropriate hedge against equity market fluctuations. The author also, unlike many other scholars, found that art as an investment yields to relatively high returns. However, these returns are justified by higher risks and after considering those risks, do not appear attractive anymore. An evidence showing paintings as poor diversification vehicle was also obtained by Stein (1977) who did not see support for a popular belief that art is less susceptible to recessions. The author obtained more neutral results on risk-return figures of paintings showing that they are no more and no less lucrative than other investment alternatives. Contrary to the evidence above, some academics have found the usefulness of investing in art for diversification purposes. Campbell (2008) observed low correlation between art and other assets and thus an opportunity for diversification even when taking into account transaction costs. Mei and Moses (2002) state that artworks may be an important component of a diversified portfolio due to their low correlation with other asset classes. Similarly, Kraeussl (2010) suggests using art to diversify a portfolio, but warns on its high volatility and poor ability to hedge against stock markets.

An empirical evidence showing the attractiveness of art as an investment asset is less common but is worth considering. Buelens and Ginsburgh (1993) used Baumol’s (1986) paper as a starting point and found that his conclusions about low profitability of paintings were too pessimistic due to higher weight of British paintings, which distorted the results, and the atypical artwork prices from 1914 to 1950. Authors argue that the low return of paintings over the period of 300 years still allows for 20 to 40 year periods of higher returns for some paintings markets. They also state that paintings might be a good opportunity for investment as tastes change slowly, but the returns will highly depend on factors such as period, artistic school and movement, etc. Tucker (1995) presents an even more positive evidence showing that art had the second highest return and the second lowest risk among the selection of seven asset classes. The findings suggested that artworks should be included in an optimal investment portfolio and should play a significant role in it.

Most of the authors who have studied art as means of investment have used either repeat-sales regression (RSR) or hedonic regression in their researches. In the repeat-sales regression used by a number of authors (e.g. Pesando 1993; Goetzmann 1993; Mei and Moses 2002) only those artworks that have been sold at least two times are taken into account. The benefit of this approach is that it controls the quality factor of works since the same items are sold (Goetzmann 1993). Alternative approach used by a number of academics such as Renneborg and Spaenjers (2009), Kraeussl (2010) and Frey and Pommerehne (1989) is hedonic regression. This method uses characteristics of items (e.g. artistic movement, artist’s name or subject matter) to obtain input values. The benefits of using hedonic regression approach include having larger samples by considering all sales and avoiding the need to use artworks of the same quality in order to make comparisons (Bialynicka-Birula, 2012) as well as giving more precise results (Chanel et al. 1996).

Besides various findings and opinions existing the topic of art as an investment and making it difficult to give a single answer on the research question, the shortcoming and limitations of many studies make the task even more complicated and require additional consideration. The limitations of some papers are easier to spot and avoid in future studies. For example, Baumol (1986) did not consider transaction costs in his study and the author’s sample did not go beyond year 1961. Similarly, Stein’s (1977) research does not cover the period after 1960s. In addition, both papers as well as some other articles on this topic were either limited to data from Anglo-Saxon markets or put too much weight on it. These shortcomings are overcome by Frey and Pommerehne (1989) by including more countries, considering transaction costs and covering extended a period or research until 1987. Some other limitations are more difficult to eliminate as they are inherent to research methods and design of papers. The repeat-sales regression used by many scholars is subject to sample selection bias, since the approach considers only artworks that were sold at least twice (Goetzmann 1993). For this reason, a survivorship bias also takes place as the limited sample only includes works the demand for which was high enough to result in at least two sales. Moreover, a so-called “backward-filled data” bias does exist in some articles (e.g. Tucker et. al. 1995) as prices of artworks taken from historical sales of prominent auction houses such as Sotheby’s and Christie’s might gravitate to the higher end of market. Other major drawbacks of using auction results for making conclusions about the art market are the infrequency of sales of individual artworks (Pesando 1993) and the fact that auction sales account for only around 25 percent of the transactions on the market (Sagot- Duvauroux 2003).

References:

1) Baumol, W. (1986) “Unnatural value: or art investment as floating crap game”,

American Economic Review, 76, 10-14.

2) Bialynicka-Birula J. (2012) “Investment in art: Specificity, Risks and Rates of Return”, Cracow University of Economics. 10-20

3) Blanding, M. (2017), ‘Why Global Diversification Is Still A Safe Bet For Your Investment Portfolio’, Forbes, (13 Jun), available:

https://www.forbes.com/sites/hbsworkingknowledge/2017/06/13/why-global-diversification-is-still-a-safe-bet-for-your-investment-portfolio/#256a49c960a1

[ accessed 14 February 2018]

4) Buelens, N., Ginsburgh, V. (1993) “Revisiting Baumol’s Art as Floating Crap Game”, European Economic Review, 37, 1351-1371.

5) Campbell, R. (2008) “Art as a financial investment”, Journal of Alternative Investments, (10), 64–81 

6) Chanel, O., Gerard-Varet, L. and Ginsburgh, V. (1996) “The Relevance of Hedonic Price Indices”, Journal of Cultural Economics, 20, 1-24.

7) Goetzmann, W. (1993) “Accounting for Taste: Art and the Financial Markets over Three

Centuries”, American Economic Review, 83 (5), 1370-1376.

8) Frey, B. and Pommerehne, W. (1989) “Art Investment: An Empirical Inquiry”, Southern Economic Journal, 396-409.

9) Kraeussl, R. and Lee, J., (2010) “Art as an investment: The top 500 artists”, VU University Amsterdam, 4.

10) Kraeussl, R. and Wiehenkamp, C. (2012) “A call on art investments”, Review of Derivatives Research, 15(1), 1-23.

11) Jinping, M. and Moses, M. (2002) “Art as an Investment and the Underperformance of

Masterpieces”, American Economic Review, 92(5), 1656-68

12) Pesando, J. (1993) “Art as an Investment: The Market for Modern Prints”, American Economic Review, 83(5), 1075-89

13) Renneboog, L. and Spaenjers, C. (2013) “Buying beauty: On prices and returns in the art market”, Management Science, 59(1), 36-53.

14) Sagot-Duvauroux, D. (2011) “Art Prices.” In A Handbook of Cultural Economics, 2nd ed., R. Towse, ed. (p. 43–48). Northampton, MA: Edward Elgar.

15) Stein, John P. (1977) “The Monetary Appreciation of Paintings”, Journal of Political Economy, 1021-1035

16) Tucker, M., Hlawischka, W. and Pierne, J. (1995) “Art as an Investment: A Portfolio Allocation Analysis”, Managerial Finance, 21 (6), 16-24

17) Vosilov, R. (2015) “Essays on art markets: Insight from the international sculpture auction market”, Umea: Umea School of Business and Economics

18) Worthington, A. and Higgs, H. (2003) “Art as an Investment: Short and Long-Term Co-movements in Major Painting Markets”, Empirical Economics, 28, 649-68

4

HERIOT-WATT UNIVERSITY

Course Name: Research Methods

Course Code: C39RE

Year of Study: 3

Coursework Title: Research Proposal Part-1

Name of Instructor: Dr. Esinath Ndiweni

Submitted by:)

Number of words: 1830 (excluding bibliography)

CONTENTS

1. INTRODUCTION & BACKGROUND………………………………3

2. RESEARCH QUESTION…………………………………………….3

3. RESEARCH AIM……………………………………………………..3

4. RESEARCH OBJECTIVES………………………………………….3

5. LITERATURE OVERVIEW………………………………………….4-5

6. THEORETICAL CONTEXT………………………………………….6

7. BIBLIOGRPAHY……………………………………………………..7

Effect of demonetisation on the Indian Stock Market

1. INTRODUCTION & BACKGROUND

Demonetisation is defined as “the act of stripping a unit of currency of its status as legal tender”(Kumar, 2016). On 8th November 2016, the Prime Minister of India Narendra Modi announced the decision to demonetise the ₹500 and ₹1000 notes of the Mahatma Gandhi series from 9th November 2016, which comprised about 86% of the total currency in the country(Midthanpally, 2017). The reasons for this move, as given by the Prime Minister in a countrywide televised speech were, to get rid of the fake currency notes that were in wide circulation; to deal with the issue of ‘black money’ that have been sat upon by citizens unwilling to pay taxes on their earnings; to address the problem of terrorism and drug-trafficking that were funded using the counterfeit currency; and to deal with the decades-long dilemma of corruption(Dasgupta, 2016).

This move undertaken by the Prime Minister, had a significant impact on the citizens of India, who had to face many problems such as lack of cash liquidity, long queues outside ATM’s and banks for withdrawing and depositing money, business slowdown due to lower consumption etc(Uke, 2017). This impact was also transferred on to the Stock Market, which showed negative trends, again due to the loss of liquidity, and thus becomes the main area of study of this paper.

This research will be helpful for Indian citizens, businesses, government as well as citizens of other countries wishing to study the impact of demonetization. It will help current and future investors, as well as financial analysts to understand the reasons for the shift in the stock market as a result of demonetization, and assist the government in taking better actions with regards to monetary policy in the future.

Limitations of this research would be the inability to consider all sectoral indices of the BSE, the time constraints associated with this study, and the inability to evaluate the impact on more time-periods than those already selected.

2. RESEARCH QUESTION

Does demonetisation have a significant influence on the Indian Stock Market?

3. RESEARCH AIM

The main purpose of this research is to find out whether there is a significant immediate, short-term and medium-term impact on some of the sectoral indices of the BSE as a result of the sudden demonetisation of currency.

4. RESEARCH OBJECTIVES

· To identify and specify the immediate, short-term and medium-term periods and to gather required data based on the same.

· To apply event study methodology in order to determine the impact of demonetisation on certain sectoral indices of the Bombay Stock Exchange (BSE).

· To develop appropriate hypotheses and perform suitable statistical tests to arrive at a conclusion.

· To contribute to the existing literature about the share price volatility due to occurrence of important events.

5. LITERATURE OVERVIEW

5.1 Chellasamy, D. P. and M, A. K. (2017) ‘Impact of Demonetisation on Indian Stock Market: With Special Reference to Sectoral Indices in National Stock Exchange of India’:(Chellasamy and M, 2017)

The aim of the paper is to determine the impact demonetisation has on the sectoral indices of the NSE and thus the Indian Stock Market. The study used the Ordinary Least Squares(OLS) to arrive at a conclusion that removal of currency from circulation has a significant effect on the stock market, shown through a negative trend for average returns on most sectors. However, few sectors such as Pharma, Energy, IT and Public-Sector Banking displayed an increase in returns. The study only compares the short-term pre-event and post-event impact of demonetisation on the stock market, and hence does not give complete information on the long- term impact.

5.2 Pathak, M. R. and Patel, B. (2017) ‘Impact of Demonetisation on Indian Stock Market’
: (Pathak and Patel, 2017)

This study uses a qualitative approach to study the impact of demonetisation on the Indian Stock Market represented by the NSE, by comparing the stock prices at 10, 30 and 50 days before and after the event date. The result that was arrived at suggested that there was no significant effect of demonetisation on the stock market, shown through a high negative correlation for the short-term period (±10 and ±30 days) and zero correlation for the ± 50 days period. The authors did not make the use of any specific model in the paper, and thus has no theory to base it on.

5.3 Bantwa, A. (2017) ‘A Study on Impact of Demonetization on Indian Stock Market and Selected Sectors of Indian Economy’: (Bantwa, 2017)

Mr. Bantwa has examined the impact of demonetisation on the Indian Stock Market, represented by NIFTY and some sectoral indices, and the impact on the volatility over a short-term period (i.e) 30 days before and after the announcement date using a paired t-test as his research method. He concluded that demonetisation has a “statistically significant impact” on all the sectoral indices that were studied.

5.4 Dubey, N. D., Pandey, S. P. and Kumar, D. D. (2017) ‘Demonetization Announcement Effect- A Case Study of Indian Stock Market’:(Dubey et al., 2017)

The main aims of this study are to measure the effect demonetization has on the stock market returns and to assess the changes in quantum of investment due to the announcement using a short-term event study on the NSE S&P CNX NIFTY Index. The inference from the study is that demonetization has a substantial bearing on the stock market and that there has been a decrease in average turnover post the announcement.

5.5 Dash, P. S. D. and Bagha, P. (2017) ‘Impact of Demonetization on Stock Price Movements in Banking Sector of India’:(Dash and Bagha, 2017)

The objectives of the study are to determine the impact of demonetisation on the stock prices of the Banking Sector represented by the SENSEX, NIFTY and BANKEX indices on the NSE, as well as to examine whether stock prices of Public Sector Banks(PSUs) display random movements. This has been conducted through a Runs test, which concludes that the indices and banks show random movements, a small percentage of which could be attributed to Demonetisation, however the percentage is not significant and may require the inclusion of additional variables to explain the random movements.

5.6 Khanna, V. and Dharmapala, D. (2017) ‘Stock Market Reactions to India’s 2016 Demonetization: Implications for Tax Evasion, Corruption, and Financial Constraints’: (Khanna and Dharmapala, 2017)

This paper studies the reaction of the Indian Stock Market (represented by the sectoral indices of the BSE) to Demonetisation, and its association with corruption, tax evasion and financial constraints, using event study methodology to assess the same. Findings of this study suggest that sectors that are more commonly associated with corruption and tax evasion (Real Estate, Agriculture) do not experience significantly different returns. However, sectors that are largely dependent on external finance for operations, show higher returns, signifying possible ease of financial restraints. However, a limitation of this paper is that it only shows the effect of demonetisation on stock prices of different sectors, without explaining its effect on the stock market as a whole.

5.7 Kumar, R. S., Robert, p. W. and Rao, D. C. B. N. (2017) ‘A study on the impact of Demonetisation on Bombay Stock Exchange’: (Kumar et al., 2017)

The aim of this paper is to assess the impact of demonetisation on the Indian Stock Market, represented by some sectoral indices of the Bombay Stock Exchange(BSE). The authors have only made use of secondary data i.e. pre and post demonetisation returns of each sector, to arrive at a conclusion that sectors that depended mainly on cash and consumption-based sectors, were negatively impacted, whereas financial sectors (public banks) showed positive results, however there are other variables that might affect the negative returns associated with stock prices such as US Presidential elections that occurred on the same date, and the subsequent effects on the US markets and currency. There has been no work on the part of the authors in terms of collecting data, to arrive at the conclusion.

5.8 Mukundan, A. (2017) ‘Impact of Demonetisation on Indian Stock Market
.’
: (Mukundan, 2017)

The main objective of the paper is to assess the effect demonetisation has on the Indian Stock Market, represented by 54 companies listed on the NSE, using Statistical Analysis as the research method, analyzing average prices, traded quantity and total trades before and after the event. The inference from this paper is that demonetisation had an impact, albeit not a very significant one, on the stock market. The problem with this paper is that there was no benchmark set to assess the results, and so no fixed conclusion was given.

5.9 R, B., S, M., S, P. and Ananth, D. A. (2017) ‘Impact of Demonetization on Indian Stock Market’:(R et al., 2017)

The aim of the study is to analyse the impact of Demonetisation by testing the Efficient Market Hypothesis on the Indian Stock Market (represented by 16 companies listed on the NSE) with Demonetisation being the key factor. This research uses Empirical Analysis, Optimal Portfolio Construction (using the Sharpe Index Model) in order to arrive at a conclusion that the 4 sectors under study follow a random walk (demonetisation being a key factor), thus being an indication of an impact caused by demonetisation on the Stock Market.

6. THEORETICAL CONTEXT

This paper uses event-study methodology in order to determine the impact of demonetisation on the Stock Market. Event study is a statistical method used to measure the impact an event has on share returns(Sitthipongpanich, 2000). The aim of this methodology is to examine if the security-holders earn any abnormal or excess returns over a period of time due to the occurrence of an event(Peterson, 1989).

Event Study is conducted, based on certain assumptions:

· The market is efficient, and hence according to the Efficient Market Hypothesis, the stock prices will instantly reflect the impact of the event(Woon, 2005).

· The event is not anticipated and/or predicted.

· There are no other significant events taking place during the same event window, which may have a confounding effect on the stock prices(Sitthipongpanich, 2000).

Abnormal return is defined as the difference between the actual return of a share and it’s expected return(Tong, 2010).

In order to estimate Normal(expected) Returns, different types of models such as the Market Model, the Constant Mean Return Model, the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory can be used(Campbell et al., 1996). In this paper, we use the Market Model.

The Market Model states that the return on a share is dependent on the market return(Rm)(Harvey, 2011) and that the parameters of the Market Model i.e. the volatility of the security (β) and the intercept(α), are estimated using Ordinary Least Squares(OLS) regression(Sitthipongpanich, 2000).

The return as specified by the market model is given as:

Ri,t = αi + βi Rm,t + εi (Drake, 2018)

Where,

Ri,t = Return on a security at time t

αi = Intercept

βi = Volatility/Risk of the security

Rm,t = Market Return at time t

εi = Regression error

7. BIBLIOGRAPHY

1. Bantwa, A. (2017) ‘A Study on Impact of Demonetization on Indian Stock Market and Selected Sectors of Indian Economy’, Pacific Business Review International, 10(3), pp. 94-101.

2. Campbell, J., Lo, A. and MacKinlay, C. (1996) ‘Event-Study Analysis’, The Econometric of Financial Markets.

3. Chellasamy, D. P. and M, A. K. (2017) ‘Impact of Demonetisation on Indian Stock Market: With Special Reference to Sectoral Indices in National Stock Exchange of India’, IOSR Journal of Economics and Finance (IOSR-JEF), 8(3), pp. 51-54.

4. Dasgupta, D. (2016) ‘Theoretical analysis of ‘demonetisation”, Economic and Political Weekly, 51(51), pp. 67-71.

5. Dash, P. S. D. and Bagha, P. (2017) ‘Impact of Demonetization on Stock Price Movements in Banking Sector of India’, International Journal of Research and Scientific Innovation (IJRSI), IV(VIIS), pp. 33-36.

6. Drake, P. 2018. Estimating a Market Model: Step-by-step. Florida Atlantic University.

7. Dubey, N. D., Pandey, S. P. and Kumar, D. D. (2017) ‘Demonetization Announcement Effect- A Case Study of Indian Stock Market’, EPRA International Journal of Economic and Business Review, 5(10), pp. 148-153.

8. Harvey, C. (2011) Market Model: NASDAQ. Available at:

http://www.nasdaq.com/investing/glossary/m/market-model

(Accessed: 17th February 2018.

9. Khanna, V. and Dharmapala, D. (2017) Stock Market Reactions to India’s 2016 Demonetization: Implications for Tax Evasion, Corruption, and Financial Constraints: University of Michigan Law School. Available at:

https://repository.law.umich.edu/cgi/viewcontent.cgi?referer=https://www.google.ae/&httpsredir=1&article=1247&context=law_econ_current

.

10. Kumar, R. P. (2016) ‘What is demonetisation and why was it done ‘, The Economic Times. Available at:

https://economictimes.indiatimes.com/news/economy/policy/what-is-demonetisation-and-why-was-it-done/articleshow/55326862.cms

.

11. Kumar, R. S., Robert, p. W. and Rao, D. C. B. N. (2017) ‘A STUDY ON THE IMPACT OF DEMONETISATION ON BOMBAY STOCK EXCHANGE’, International Journal of Advance Research and Innovative Ideas in Education(IJARIIE), 3(5).

12. Midthanpally, R. S. (2017) ‘Demonetisation and Remonetisation in India’, South Asia Research, 37(2), pp. 213-227.

13. Mukundan, A. (2017) Impact of Demonetisation on Indian Stock Market.

14. Pathak, M. R. and Patel, B. (2017) ‘Impact of Demonetisation on Indian Stock Market’, International Journal of Research in IT and Management (IJRIM), 7(5), pp. 89-99.

15. Peterson, P. P. (1989) ‘Event Studies: A Review of Issues and Methodology’, Quarterly Journal of Business and Economics, 28(3), pp. 36-66.

16. R, B., S, M., S, P. and Ananth, D. A. (2017) ‘IMPACT OF DEMONETIZATION ON INDIAN STOCK MARKET’, International Journal of Management (IJM), 8(3), pp. 75-82.

17. Sitthipongpanich, D. T. (2000) ‘Understanding the Event Study’, Journal of Business Administration(JBA), (2554), pp. 59-68.

18. Tong, L. (2010) Event Study Analysis of Share Price and Stock Market Index Data. Master of Science in Computing for Financial Markets, University of Stirling, Scotland [Online] Available at:

http://www.cs.stir.ac.uk/courses/ITNP99/PastDissertations/2009-2010/Dissertations/TongL

(Accessed.

19. Uke, L. (2017) ‘Demonetization and its effects in India’, SSRG International Journal of Economics and Management Studies (SSRG-IJEMS), 4(2), pp. 18-23.

20. Woon, W. S. 2005. Introduction to the Event Study Methodology Singapore Management University.

EVENTANALYSIS OF CRYPTOCURRENCIES
by
Hammad Irfan
H00203453

Dissertation Supervisor: Dr. Ullas Rao

Word Count: 13696

Dissertation submitted in partial fulfillment of the degree of MA (Hons

)

in
Accountancy and Finance
at
School of Management and Languages
Heriot-Watt University Dubai-Campus

ACKNOWLEDGEMENTS
I would like to convey my sincere gratitude to Mr. Ullas Rao for his counselling in carrying out this dissertation and prosecuting a completed form of the research. Moreover, I thank him for his support; which has been vastly helpful.

DECLARATION
I, Hammad Irfan, hereby declare that this dissertation is my own work and carried out with the help of my supervisor. For evidence, ideas and work of others was conceded and appropriately referenced. The study satisfies the regulation and procedure of the dissertation course. Furthermore, the ethical approval for this study has been approved in a proper manner.

Name ………………………………… ID ……………………….. Date …………………….
SIGNATURE ………………………

Abstract
Cryptocurrency, which is a peer-to-peer, encrypted network used to facilitate digital barter, is a knowhow has been in existence for the last one decade. Bitcoin, which was the first and most renowned cryptocurrency, has fast been paving the way as one of the disruptive technologies to unchanging and long standing monetary payment systems. Whereas cryptocurrencies are unlikely to substitute old-fashioned fiat currencies, they have high chances of changing the manner in which Internet-connected universal marketplaces interact with one another, eliminating barriers and hurdles that often surround the normative national currencies along with exchanges rates. Studies show that cryptocurrencies are likely to revolutionize digital or internet trade marketplaces by leading to the creation of a free flowing trading system minus charges. Comprehending the dynamics about these marketplaces can assist to evaluate vow feasible and viable the cryptocurrency environment is alongside how design choices influence marketplace behaviour. It is against this background that this dissertation aimed at analyzing cryptocurrencies using an event technique. To achieve this, three objectives were addressed (i) To determine the global trends with respect to marketplace capitalization of Bitcoin, Monero, Ethereum, Ripple, Litecoin, MaidSafeCoin, Dash, and Dogecoin; (ii) To explore the similarities and differences between Bitcoin and the rest of the cryptocurrencies; and (iii) To determine the five most widely used cryptocurrencies used in the world among Bitcoin, Monero, Ethereum, Ripple, Litecoin, MaidSafeCoin, Dash, and Dogecoin. The event study methodology was employed with the event announcement that was be considered for this study was Dubai’s New Year’s Eve which took place on 31/12/2018. The sample period chosen for this study entailed indices and prices of the chosen cryptocurrencies between 18/12/2018 and 19/1/2019. Secondary data regarding price and index information for different cryptocurrencies was obtained from the cryptocurrencies index 30 (CCI30).
The study found out that in the long term, it is not vivid whether the substantial strengthening of BTC that Bitcoin has enjoyed over other cryptocurrencies will be adequate to help it keep the dominant position. Secondly, the study shows that cryptocurrency appears to have moved past the preliminary adoption phase that new know-hows experience. Bitcoin has continued to carve itself a niche marketplace, which could function to help in the advancement of cryptocurrencies further into the mainstream, or can as well be the main cause of the market’s falling. With the limitations of this study, recommendations are made for future/further studies.
Table of Contents

CHAPTER 1: INTRODUCTION

5
1.1 Objective of the Chapter 5
1.2 Introduction and Background of the Study 5
1.3 Motivation for the Study 6
1.4 Aim of the Dissertation 8
1.5 Research Questions 8
1.6 Hypotheses 8

CHAPTER 2: LITERATURE REVIEW

8
2.1 Introduction 8
2.2 Objective of the Chapter 9
2.3 A Brief History about Cryptocurrencies 9
2.4 Detailed View of Cryptocurrencies 11
2.4.1 Bitcoin 11

2.4.2 Ethereum

12

2.4.3 Dash

13

2.4.4 Litecoin

14

2.4.5 MaidSafeCoin

14
2.4.6 Monero 15

2.4.7 Dogecoin

15

2.4.8 Ripple

15

2.5 Analysis of the Cryptocurrencies

16
2.6 Problems Associated with the Use of Cryptocurrencies 22
2.6.1 Hoaxing users’ payment information/data and phishing 22
2.6.2 Hacking a payment channel 22

2.6.3 Price manipulation

23

2.6.4 Ponzi and scam schemes

23

2.6.5 Pump and dump initial coin offering (ICOs) schemes

24
2.6.6 Cybercriminals activities 24
2.6.7 Lack of uniformity in prices 25

2.6.8 Transaction delays

25
2.7 SWOT Analysis of Cryptocurrencies 26
2.7.1 Strengths 26

2.7.2 Weaknesses

27
2.7.3 Opportunities 27
2.7.4 Threats 28

CHAPTER 3: METHODOLOGY

28

3.1 Objective of the Chapter

28
3.2 Research Sample 29

3.2.1 Sources of data

29

3.2.2 Chosen sample period

29

3.2.3 Selected sample data and data collection procedure

29

3.3 Research Method

30

3.3.1 Event study

30
3.3.2 Determination of EW, ED and CW and

Data

Analysis 31

CHAPTER 4: FINDINGS AND ANALYSIS

32

4.1 Objective of the Chapter

32
Global Trends and Competition between the Cryptocurrencies 32
4.4 Currency Exchanges and the Most Widely Used Cryptocurrencies 39

4.5 Transacting Within the BTC-E Exchange

40

4.6 Tests for Transaction Openings across Exchanges

41
4.6 Similarities and Differences between Bitcoin and Other Cryptocurrencies 43

4.6.1 Bitcoin

43
4.6.2 Ethereum 44
4.6.3 Ripple 44

4.6.4 Litecoin

45

4.6.5 Monero

45
4.6.6 Dash 45

CHAPTER 5: CONCLUSION

46

5.1 Objective of the Chapter

46
5.2 Summary 46
5.3 Prosecution of the Hypotheses 46
5.4 Limitations of the Study 47
5.5 Further Research 48

References

49

CHAPTER 1: INTRODUCTION

Objective of the Chapter

This chapter’s aim is to give a background of the research topic, an event analysis of cryptocurrencies, since cryptocurrencies has fast received a global consideration and interest. Using at least five cryptocurrencies, this dissertation will analyze how cryptocurrencies have developed, how the launch of the cryptocurrencies has impacted different economies and what the future holds for cryptocurrencies. Additionally, this chapter will give the aim of the dissertation, the motivation behind the dissertation, and give an outline of the dissertation.

Introduction and Background of the Study

According to the Merriam Webster, cryptocurrencies refer to “any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions”. Whereas they are technically not money, their worth is associated to actual world currencies. Cryptocurrencies are fast gaining popularity. The marketplace cap and price of these assets, according to Arnold (2017), are touching unprecedented highs, with millions and billions of the United States (U.S.) dollars of worth per day presently being traded in cryptocurrencies. Financial establishments are investing in developing digital currency know know-hows. Blockchain-based technology startups are thriving. With changes continuing to happen in the cryptocurreny atmosphere, the need to understand marketplace dynamics of cryptocurrencies rises. As cryptocurrencies have continued to gain popularity, the increase has been characterized by crises. From then fall of Mt. Gox that happened in 2014 to the hack of Ethereum, marketplace crashes have been rampant occurrence.

Cryptocurreny is a recent technology that is fast receiving substantial attention and interest. On the one hand, it is fundamentally based upon a new technology, the capability of which has not wholly been comprehended (Blockchain Luxembourg, 2018). Conversely, at least in the contemporary form, it does similar roles as other, extra old-fashioned assets. The first decentralized cryptocurreny, Bitcoin, has gained a large following from academics, media, as well as the financial sector since 2009 when it was conceived (Bordo, 2018). Built on blockchain know-how, Bitcoin has set up itself as a marketplace leader of cryptocurrencies and there are no signs of holding back. As opposed to being funded upon traditional trust, the currency is founded upon cryptographic proof that offers several advantages compared to old-fashioned methods of payments, like Mastercard and Visa (Bitcoinwiki, 2018), including lower costs of transaction, high liquidity, along with anonymity, to mention but a few.

Indeed, the worldwide interest in Bitcoin has spiked one more time in months. For instance, the United Kingdom (U.K.) government is considering disbursing out research scholarships in Bitcoin, a number of information technology firms are stockpiling Bitcoin as a way of defending against ransom ware, and increasing numbers in China are purchasing Bitcoin and perceiving it as an investment opening.

Since 2009, several cryptocurrencies have been created. As of February 2017, Bratspies (2018) notes that 720 cryptocurrencies are inexistence. Nonetheless, Bitcoin remains the most popular and largest of the cryptocurrencies that are in existence, accounting for more than 81% of the total cryptocurreny marketplace (Clements, 2018). The combined marketplace capitalization of all cryptocurrencies is estimated at $19 billion as of 2017 February, with the world’s top 15 currencies accounting for more than 97% of the marketplace, and seven of these currencies accounting for about 90% of the total marketplace capitalization (CryptoCoinNews, 2018). For this analysis, focus will be on eight cryptocurrencies, Bitcoin, Monero, Ethereum, Ripple, Litecoin, MaidSafeCoin, Dash, and Dogecoin, which fall into the classification of having been in existence for above two years and are falling within the top 15 currencies by way of marketplace capitalization.

Motivation for the Study

The cryptocurreny marketplace has erratically evolved and at an extraordinary speed within the short span of time it has been in existence. Since the dawn of the pioneer anarchic cryptocurreny, Bitcoin, there are several other cryptocurrencies. Bitcoin, the most popular as well as well-known cryptocurreny globally, has been increasing in fame. It has the original structure that it had as at 2009, yet repeat cases of the world marketplace changing has created a new demand for cryptocurrencies that is greater than the initial displaying. Cryptocurreny can be used in digital exchange of value without a third party oversight (Bitcoinwiki, 2018). Cryptocurreny functions on the theory of solving encryption algorithms with the goal of creating exceptional hashes that are determinate in number.

Combined with a connection of computers functioning to verify transactions, users have the ability to exchange hashes just like they would exchange physical currency (Arnold, 2017). There is a limited number of Bitcoin that can be generated, thus avoiding an overabundance as well as making sure Bitcoin rarity (Guadamuz & Marsden, 2015). Worth exists for Bitcoin since its utilizers have confidence and trust that should they accept its payment, they can be able to employ it elsewhere to buy something that they need or want (Miles, 2017).Blockchain Luxembourg (2018) notes Bitcoin does not have inherent worth since it cannot be employed to make physical objects that have value. Nonetheless, its value continues to exist due to acceptance and trust.

The motivation behind conducting this dissertation is that while there are several cryptocurrencies that are currently in use, there is but a smidgeon of research available on the currencies; research upon the currencies and sector are still scarce. Most of the studies that have also been done are largely focused upon Bitcoin as opposed to the diverse distribution of cryptocurrencies and is continuously being outpaced by fluid sector developments, like technological progression, new coins, as well as increasing government control and regulation of the marketplace (D’Alfonso et al., 2018; Lakhami & Iansiti, 2017; Middlebrook & Hughes, 2014; Nahorniak & Vladyslava, 2017; Pattinson, 2011). Most studies have been focused upon security, technological, and legal issues surrounding Bitcoins and other studies have considered the financial characteristics of cryptocurreny (CryptoCoinNews, 2018; D’Alfonso et al. (2018); Pflaumn & Hateley, 2011). Evidently, notwithstanding the significance of the cryptocurreny phenomenon, limited research has been done regarding the concept with some studies conflicting on their findings regarding Bitcoins particularly.

Notwithstanding the fact that fluidity of the sector does, acceptably, present a challenge to study, an all-encompassing assessment of the cryptocurreny marketplace in needful. Additionally, earlier studies have hinted on the need to analyze as well as conduct research on other cryptocurrencies apart from Bitcoin. It is upon these grounds that this dissertation bridges the gap in literature by analyzing seven cryptocurrencies by highlighting different aspects of the cryptocurreny industry to help policymakers, economists, scholars, and governments understand details concerning cryptocurreny sector for better ways moving forward. Concerted effort will be dedicated to the examination of the dissimilarities between the cryptocurrencies that are in existence today.

+

The aim of this dissertation is to analyze cryptocurrencies using an event technique. Other objectives of the study include the following:

i. To determine the global trends with respect to marketplace capitalization of Bitcoin, Monero, Ethereum, Ripple, Litecoin, MaidSafeCoin, Dash, and Dogecoin

ii. To explore the similarities and differences between Bitcoin and the rest of the cryptocurrencies.

iii. To determine the five most widely used cryptocurrencies used in the world among Bitcoin, Monero, Ethereum, Ripple, Litecoin, MaidSafeCoin, Dash, and Dogecoin.

Research Questions

The research questions that are considered in this dissertation are:

i. What are the major trends regarding marketplace capitalization of the world’s major eight cryptocurrencies?

ii. How does Bitcoin relate with the other major cryptocurrencies as a far as performance in the last two years are concerned?

iii. Which are the five most widely used cryptocurrencies used globally?

Hypotheses

Two hypotheses will be tested in this dissertation:

H1: Bitcoin is to remain the world’s leading cryptocurreny in terms of marketplace capitalization

H2: The use of cryptocurreny is likely to continue increasing globally.

CHAPTER 2: LITERATURE REVIEW

2.1 Introduction

Cryptocurreny has been defined in a number of ways. Nonetheless, the commonly accepted definition is that it is a digital depiction of worth that is aimed at constituting a peer-to-peer (P2P) substitute to public-issued lawful tender that is employed for general-purpose exchange medium, secured by cryptography mechanism, and is convertible into legal tender and the vice versa is true.

2.2 Objective of the Chapter

Cryptocurrencies have increased in popularity since the rise of the concept. It is, therefore, necessary to examine the technology into details.

This chapter offers literature review regarding the cryptocurreny marketplace. The chapter begins by giving a brief history regarding cryptocurrencies, highlighting that the technology dawned in 2009 when Bitcoin was launched. The chapter continues to discuss into details the eight chosen cryptocurrencies chosen for this study, discussing the currencies’ main features and capabilities. The chapter then proceeds to compare the eight cryptocurrencies using statistical data and theoretical deductions that have been made by different scholars.

2.3 A Brief History about Cryptocurrencies

Notwithstanding the fact that the electronic currency concept was developed as early as 1980s, Bitcoin that was launched in 2009 by Satoshi Nakamoto, a pseudonymous developer is the first decentralized cryptocurreny (Ross, 2017). In a nutshell, a cryptocurreny refers to a virtual coinage system that operates alike to a standard coinage, allowing utilizers to offer cybernetic payments for services as well as goods free of a principal trustworthy power (Miles, 2017). Cryptocurrencies depend upon the broadcast or spread of digital data, using cryptographic techniques to warrant unique and legitimate transactions. Instead, businesses and individuals electronically transact with the coin on a P2P linkage. By the beginning of 2011, Bitcoin caught a wide interest and attention, and a number of altcoins (an over-all name given to all other kinds of cryptocurrencies) before long appeared.

In 2011, Litecoin was launched, gaining decent success as well as enjoying the top-most cryptocurreny marketplace cap after Bitcoin cryptocurreny until it got outpaced by Ripple on the 4th of October, 2014 (Litecoin Project, 2017). Bordo (2018) points out that Litecoin improved Bitcoin’s protocol, raising the speed at which transactions occurred with the notion that it would be extra suitable for daily transactions.

Launched in 2013, Ripple introduced a considerably distinct model from that which was employed by Bitcoin, Ripple presently upholds the second top most marketplace cap of about $255 m (Blockchain Luxembourg, 2018; Gans & Halaburda, 2013). Another cryptocurreny that is currently in existence is Peercoin, which employs an innovative technological development in securing and sustaining its coinage (Zuckerman, 2018). Peercoin combines proof-of-work (PoW) knowhow that is used by Litecoin and Bitcoin in addition to proof-of-stake (PoS) which is its own mechanism, to use an amalgam linkage security machinery.

Lately, NuBits/NuShares cryptocurreny have also emerged, launched in 2014, which primarily depend upon a dual coinage model that is exclusively detached from the unitary coinage model employed by traditional coins (Ross, 2017).

Presently, more than 720 coins are in existence with varying trade volumes and user bases (Arnold, 2017). Owing to the high instability and unpredictability of the cryptocurreny, its marketplace and industry capitalization dramatically changes, but approximated to be more than $5 billion, with Bitcoin accounting for about 88% of the marketplace capitalization (Dupont, 2012). Bitcoin along with other existing cryptocurrencies are regarded as decentralized systems; they have no central power/authority. They employ cryptography in controlling their transactions, thus increasing the supply and preventing fraud (Pflaumn & Hateley, 2011), hence the name cryptocurrencies. Once all transactions are confined, all transactions are digitally stored and recorded within a blockchain, which is regarded as an accounting system. Payments are authenticated by network nodes. In Bitcoin case, powerful computers are sometimes required for the whole process.

Bitcoin’s set of rules offer an effective protection against currency ‘counterfeiting.’ Nonetheless, the environment is susceptible to theft (CryptoCoinNews, 2018). Utilizers keep keys to their individual Bitcoins and perform transactions with the assistance of wallets. Miles (2017) states that exchanges enhance trade between fiat currencies and Bitcoins, ad equally allow for storing of Bitcoins. Bitcoins can be stolen via exchanges or wallets. Guadamuz and Marsden (2015) reason that till now, exchanges have been targeted extra frequently compared to wallets. Many wallets are situated on utilizers’ computers, whereas exchanges are naturally online, making exchanges an easier target. Pattinson (2011) notes that in February 2014, it was established that $350 m value of Bitcoins were embezzled from Mount Gox, a conduct that lead to in the closure of the exchange.

The supply of a number of cryptocurrencies rise at a preset rate, and can never be changed by any central power/authority (Lakhami & Iansiti, 2017). For instance, in 2014, there were approximately 13 million Bitcoins in circulation, with the highest allocation eventually reaching 21 million (Nahorniak & Vladyslava, 2017). Originally, Bitcoin was partly popular because its anonymity allowed trade in unlawful goods. On 2nd October, 2013, the government of U.S. closed the largest website that was involved in this unlawful activity (Chu et al., 2015) and during that process, approximately 1.5% of all Bitcoins that were in circulation at that time were received by FBI (Gandal & Laburda, 2018). The prices of Bitcoins continued to rise notwithstanding the action by the government of U.S., partly because the currency had a robust deflationary facet to it as a result of its limited supply (Raymaekers, 2015). Also, there are massive fluctuations in the value of cryptocurrencies, in part, due to speculation, general uncertainty, and security challenges/issues as to how the marketplace or sector will develop.

2.4 Detailed View of Cryptocurrencies

2.4.1 Bitcoin

From the brief above, it can be seen that in the beginning was the Bitcoin. Bitcoin refers to a P2P, open source digital currency first proposed in the year 2008 in a white paper that was published under Satoshi Nakamoto’s name. Beginning the paper, Nakamoto states that “Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weakness of the trust based model” (Durbin & Watson, 1971, p.17). Additionally, the availability of trusted intermediary raises transaction costs, eliminating possibilities for small unpremeditated transactions (Middlebrook & Hughes, 2014). Further, a lot of pressure is mounted upon trusted intermediaries to collect as much data and information as can be possible to help in the controlling of transaction costs. For this reason, Nakamoto set out to make a coinage that wholly eliminated any trustworthy principal power and substitute trust with cryptographic resilient, a system that would have the added benefit of having low costs of transactions, low latency, as well as pseudo-inconspicuousness (Zuckerman, 2018).

According to CryptoCoinNews (2018), a Bitcoin, along with succeeding cryptocurreny, is just but a series of digital autographs, where each user digitally transmits their coin to the next coin by validating hash for the former business deal as well as the public key of the subsequent owner besides toting these to a coin’s end to ensure that possession can dynamically be programmed into the coinage. Moreover, these series of computer cryptographs are kept in some platform referred to as ‘wallet’ on individual hard drives and/or through wired wallets such as Coinbase. Just like commodities or cash, Bitcoins can be destroyed, stolen, or lost. The only way through Bitcoins can be sent or received is by logging a business deal upon the public account book, equally known as the ‘blockchain.’

2.4.2 Ethereum

Ethereum is a decentralized computing platform that was launched officially in 2015 and has its individual Turing-complete programing language (Chu et al., 2015). The public ledger system records contracts or scripts that are run as well as executed by all participating nodes, and are activated via payments that have native cryptocurreny ‘ether’ (Bovaird, 2016). Currently, it has attracted a substantial attention and interest from a number of institutional players and developers. It differs from Bitcoin by its ability to leverage the employment of ‘smart contracts’ in its codes (Ross, 2017). Whereas it is growing at somewhat a significant rate in the recent past years, Ethereum, according to Desjardins (2016), has a total marketplace capitalization of about 10% of Bitcoin’s (Lakhami & Iansiti, 2017).

Zuckerman (2018) asserts that whereas the underlying currency, the Ether, depreciates and appreciates in worth, Ethereum’s worth is largely propelled by its rising utility as well as ability to ultimately remove the involvement of third parties in determining contractual responsibilities. The main payback of Ethereum can be established in the belief that so long as it can be aptly coded, Ethereum’s smart scripts or contracts carry potentially unrestricted utility (Hileman, 2016). Hofman (2014) notes that Ethereum Network functions to facilitate data, votes, and information exchange, implying that there possibilities of using cases well above merely serving as an interrupter to present time monetary institutions. The Ether currency, as Kar (2016) states, functions as the fuel or gas the gives power to transactions within Ethereum Network.

2.4.3 Dash

Earlier known as XCoin as well as DarkCoin, Dash is a confidentiality-centric cryptocurreny that was launched in 2014 (Asolo, 2018). Though founded upon Bitcoin’s basics besides sharing alike properties, Dash’s network is a 2-tiered, bettering on that used by Bitcoin (Raymaekers, 2015). It has recently realized a substantial rise in marketplace worth since the start of 2017. Dash, relative to Bitcoin, is monitored by a dispersed connection of servers, referred to as ‘masternodes,’ which function to alleviate the necessity of a third party overseeing entity (William & Olson, 2013), as well as allows for operations like instant transactions and financial privacy (Yermack, 2013). Contrarily, utilizers, users, or ‘miners’ within the currency’s link offer computing influence for fundamental operations like sending as well as receiving currency, along with the prevention of double expending (Chu et al., 2015).

The strength of employing masternodes is that computations or dealings can be established almost within actual time, relative to Bitcoin linkage since masternodes are unique from miners, along with the two having non-overlapping operations (Svetlana & Angelika, 2014). Dash employs the X11 chained PoW hashing protocol which assists to evenly deal out the processing through the network while upholding an alike coinage spreading to Bitcoin. Utilizing 11 distinct hashes raises security as well as decreases the improbability of Dash. Dash functions using a decentralized monitoring system by blockchain which permits possessors of masternodes to make verdicts as well as offers a technique for the stage to finance its individual development (Kasiyanto, 2016).

2.4.4 Litecoin

Created and launched by Charles Lee in 2011, Litecoin is regarded as the ‘silver’ to Bitcoin’s gold as a result of its extra plentiful total supply of approximately 84 million Litecoin. Litecoin borrows the principal notions from Bitcoin yet has changed some fundamental parameters, like the mining protocol is founded upon scrypt as opposed to SHA-265 of Bitcoin. Founded upon alike P2P algorithm used by Bitcoin, it has often been considered as the leading competitor of Bitcoin since its features’ are better than those of Bitcoin (Litecoin Project, 2017).

Litecoin has two principal differences from Bitcoin. It uses scrypt as a PoW protocol and a substantially faster validation time for dealings and operations. Bitcoin allows for standard computational hardware for purposes of verifying transactions as well as minimizing the incentives to employ specifically formulated hardware, whereas Litecoin minimizes transaction authorization times to minutes as opposed to hours and is chiefly attractive in time-crucial circumstances (William & Olson, 2013).

2.4.5 MaidSafeCoin

MaidSafeCoin is a cryptocurreny that powers the P2P Secure Access For Everyone (SAFE) connection, which amalgamates the computing influence of all its utilizers, and can be regarded as a crowd-sourced internet (MaidSafe, 2017a). Each MadeSafe coin possess a distinct identity and there exists an upper hard limit of about 4.4 billion coins relative to Bitcoin’s 21 million coins. With the currency being employed to pay for services upon the SAFE link, the cryptocurreny will be reused, implying that theoretically, MadeSafe coin amount will not become exhausted (MaidSafe, 2017b). The process involved in generating new MadeSafe currency is alike to other cryptocurrencies, and with regard to MadeSafe’s network, this is known as ‘faming’ (Desjardins, 2016). Utilizers of MadeSafe contribute their individual computing powers as well as storage spaces to the network who are compensated with coins when the SAFE network accesses information and data from their stores (MaidSafe, 2017a).

2.4.6 Monero

Monero (XMR) is a cryptocurreny system that functions with the goal of providing anonymous digital cash through the use of signatures, stealth addresses, and confidential transactions to mystify the origin, destination of executed coins, and transaction amount (Magro, 2016). Kar (2016) states that Monero is a private, secure, untraceable currency that is founded around scalability and decentralization. It was launched in 2014. The currency is wholly donation-based, society propelled, and exclusively based upon PoW (Hofman, 2014). Whereas transactions along Monero’s network are private, utilizers can establish a level of privacy, permitting as little or much access to their transactions as they may desire. Despite the fact that it uses a PoW protocol, Monero is extra alike to the Litecoin currency since mining can be executed through any contemporary computer and is not restricted to specifically designed hardware (Bovaird, 2016).

2.4.7 Dogecoin

Created in December 2013 by a marketing expert and Australian brand, as well as a Portland programmer, Oregon, Dogecoin began as a joke currency but faster obtained traction DeVries (2016) Dogecoin is a departure on Litecoin, operating on cryptographic scrypt allowing alike advantages over Bitcoin like faster operation processing times (William & Olson, 2013). Among the reasons why Dogecoin attracts people is its light-hearted philosophy as well as lower entry hurdles to capitalizing in or obtaining cryptocurrencies.

2.4.8 Ripple

Ripple (XRP) is the only cryptocurreny that lacks a blockchain but in its stead employs a ‘global consensus ledger.’ The Ripple algorithm is employed by institutional players like large banks as well as money service establishments. Native token XPR functions to bridge currency between countrywide pairs that are hardly traded as well as to avert spam attacks (Kristoufek, 2018). Developed in 2012, Ripple is the first universal real-time grow settlement connection which allows banks to rely real-time global payments across connections (Desjardins, 2016). The Ripple connection is a blockchain platform that incorporates a payment structure, as well as currency system known XPR that is not founded upon PoW like Dash and Monero. One distinct property of Ripple is that the XPR is not mandatory for transactions on the Ripple network, despite the fact that it is encouraged as a link currency for extra competitive across international border payments (Kasiyanto, 2016). Relative to Bitcoin, Ripple has strengths like greater control over the system owing to the fact that it is not subject to the cost volatility of the underlying currencies, besides the fact that it has more secure distributed approval process (Magro, 2016).

2.5 Analysis of the Cryptocurrencies

Consider the Tables 1 and 2 below for a statistical analyses of the cryptocurrencies. Note, in this analysis, Ethereum is not considered.

Table 1: Summary Statistics of Every Day Exchange Rates of Bitcoin, Litecoin, Dash, Maidsafecoin, Dogecoin, Monero, Euro, and Ripple against the $ Between 23 June 2014 And 28 February 2017 (Rivin & Scevola, 2018).

Table 2: Summary Statistics of Every Day Log Returns of the Exchange Rates Of Bitcoin, Litecoin, Dash, Maidsafecoin, Dogecoin, Monero, Euro, and Ripple Against The $ Between 23 June 2014 And 28 February 2017 (Rivin & Scevola, 2018).

The above Table 1 indicates that Dogecoin’s exchange rate is the least significant of all the cryptocurrencies and as at February 2017, the exchange rate stood at about $0.0002 to a Dogecoin. This is because Dogecoin is largely employed as a currency meant for online tipping as opposed to a currency for standard payments. It also has the least mean, median, firs quartile, minimum. Conversely, being the most famous of all the cryptocurrencies, Bitcoin has the largest/greatest minimum, median, mean, first quartile, third quartile, and maximum values, implying that it has a greater significance as well as higher worth relative to other currencies. The cryptocurrencies’ exchange rates are positively skewed, with Monero, Ripple, and Litecoin being the most skewed. Regarding kurtosis, MaidSafeCoin displays a less peakedness relative to that of a normal distribution; Dash, Dogecoin, and Bitcoin show similar levels to the normal distribution; Monero, Ripple, and Litecoin have substantially greater peakedness relative to the normal distribution. MaidSafeCoin, Ripple, and Dogecoin’s exchange rates have the least standard deviations and variances, implying that their low volatility can somewhat be justified by the low worth of the exchange rates along with the fact that their interquartile ranges and range are considerably restricted. Conversely, Dash, Litecoin, and Bitcoin’s exchange rates show the highest standard deviation and variance.

From Table 2 about the log returns, Monero, MaidSafeCoin, and Dash have the least minimum values, whereas Litecoin and Dash have the highest maximums. The medians and mans of the cryptocurrencies are nearly similar as well as nearly equivalent to zero. Only the log returns of Litecoin and Bitcoin are positively skewed. Log returns of the cryptocurrencies have a peakedness that is considerably greater relative to that of a normal distribution, with the most peaked being those of Litecoin, Dogecoin, and Dash. Worth noting is that while much has been said about Bitcoin returns’ volatility, the log returns of the same have the lowest standard deviation and variance.

According to Linden (2017), the combined marketplace capitalization (that is, the product of marketplace price and the number of existing currency units) of all cryptocurrencies has risen more than three times since the beginning of 2016, reaching $27 billion by April 2017 (Figure 1 below.

Figure 1: The Total Cryptocurreny Marketplace Capitalization Has Risen By More than Three Times since the

Beginning of

2016, Reaching About $25 Billion as At March 2017

(Hileman & Rauchs, 2017).

Even though Bitcoin remains the leading cryptocurreny with reference to marketplace capitalization, other cryptocurrencies are fast cutting into its historically leading marketplace capitalization share: whereas Bitcoin’s marketplace capitalization contributed for about 86% of the total cryptocurreny marketplace as at March 2015, it has fallen to 72% as at March 2017 (Kristoufek, 2018) (Figure 2). Ether, which is the native cryptocurreny of the Ethereum system, has set up itself as the 2nd largest cryptocurreny. The joined ‘other cryptocurreny’ group has doubled its marketplace capitalization share from 2015’2 3% to 2017’s 6% (Linden, 2018). The combined ‘other cryptocurreny’ category has doubled its share of the total market capitalization from 3% in 2015 to 6% in 2017.

Figure 2: Bitcoin Has Conceded Substantial ‘Marketplace Capitalization Share’ To Other Cryptocurrencies (Hileman & Rauchs, 2017).

Monero and Dash have equally become increasingly famous and presently account for a combined 4% of the cryptocurreny marketplace capitalization (Hileman, 2016). Figure 3 below shows that Monero and Dash have realized the most substantial growth with reference to price in the recent years. Whereas Monero’s price had begun skyrocketing as early as 2016, that of Dash had risen exponentially as from December 2016 (Linden, 2017). Moreover, the price of ether has equally recovered from a series of attacks that were launched upon Ethereum atmosphere, beginning with the DAO hack in during the month of June 2016, and rose eight times since its 2016’s below 7% value in December 2016 (Linden, 2018). Generally, all listed cryptocurrencies have increased their marketplace values so far.

Figure 3: Marketplace Prices of Monero, Ether, and Dash Have Realized a Significant Growth since June 2016 (Hileman & Rauchs, 2017).

Comparing the average number of every day transactions executed on each and every one of the cryptocurrency’s payment connection, Bitcoin is significantly the most commonly employed, followed at some distance by Ethereum (Table 3).

Table 3: Average Everyday Number of Transactions for Principal Cryptocurrencies (Hileman & Rauchs, 2017).

All other cryptocurrencies have low transaction volumes. Nonetheless, an overall trend towards increasing transaction volumes was established by Svetlana and Angelika (2014) through an assessment of quarters from the fourth quarter of 2016. Dash and Monero transaction volumes were found to be increasing at the fastest rate. That notwithstanding, Bitcoin still remains the marketplace leader with respect to marketplace capitalization as well as usage even though the increasing interest in other cryptocurrencies cannot be ignored as shown in the Figure 4 below. Bitcoin is also the most widely backed up cryptocurreny among people taking part in wallets, exchanges, and payment firms, which are the main industry sectors in the cryptocurreny industry.

Figure 4: Bitcoin Is the Most Extensively Used and Supported Cryptocurreny among Participating Wallets, Exchanges, and Payment Companies (Hileman & Rauchs, 2017).

2.6 Problems Associated with the Use of Cryptocurrencies

The cryptocurreny marketplace appears to be growing in popularity daily. With the astronomical emergence of cryptocurrencies like Ethereum and Bitcoin, among other cryptocurrencies, there appears to be increase or influx of people into the marketplace. Lilienthal and Ahmad (2018) state that many cryptocurreny exchanges cannot afford to have their account creation functionalities open all the time, implying that the entry into the market is increasing in demand. The average every day trading volume of the cryptocurreny marketplace is often trillions of dollars with the total marketplace capitalization standing at around a half a trillion dollars, which is a surprising feat taking into consideration the fact that the market has barely been in existence for less than a decade (Plassaras, 2013). Notwithstanding the good performance, there are several problems and functional and structural concerns associated with the market. The problems and issues have been attributed to the infant nature of the marketplace, lack of good understanding of the cryptocurreny space, as well as some unusual economics of cryptocurrencies. Some of the problems and issues are discussed below.

2.6.1 Hoaxing users’ payment information/data and phishing

When transferring money from one user to another, the sender may copy the intended recipient’s wallet address. However, the malware may replace the address within the clipboard with another user’s address and since not every single user is keen enough to double check an address after they have copied, losses are likely to be realized. Also, users stand a chance of being duped into entering phishing websites wherein they upload their cryptowallets as well as enter their passwords.

2.6.2 Hacking a payment channel

With cryptocurreny, even a correct address use and a genuine payment can result in a loss of money (Leng, 2018).Classic cryptocurreny, Ethereum’s most popular currency, in June 2017, suddenly began stealing money from utilizers’ wallets (Marshall, 2017). It later turned out that hackers had employed social-engineering techniques to persuade the hosting provider that they were the genuine and real owners of the domain, thus gained access. Soon, they began intercepting the flow of cash.

2.6.3 Price manipulation

The biggest issue facing the cryptocurreny marketplace is the excessive volatility. The prices of most cryptocurrencies on exchange platforms dramatically fall and rise with a short span of time. There are several reasons that have been advanced to explain the excessive volatility within the cryptocurreny marketplace yet the biggest contributor is the undertakings of the “whales.” In this paper, whales refer to those people who have large cryptocurreny holdings. These individuals have the ability to influence the market by controlling cryptocurreny prices. They do and realize this by way of buy and sell walls. A buy wall simply refers to a buy position that is worth a lot of money being opened upon a crypto-trading platform (Plassaras, 2013). Usual investors trading in small amounts will recognize this position and interpret to imply a forthcoming price increase. Once this occurs, the price of the cryptocurreny will rise inevitably.

The challenge with this frequently happening scenario is that the whales often drive up cryptocurrencies’ prices without really investing in the marketplace. Jayachandran (2017) reasons that the real trades that have heightened or enhanced prices of cryptocurrencies have originated from smaller traders. When prices are at some point that favours the whales, they can often adjust their sell and buy walls, pump in more cash into the system and once they do so, the price of a particular cryptocurreny dramatically falls. This process can get repeated a number of times with only the whales realizing benefits. Plassaras (2013) points out that the main reason why this kind of manipulation of asset price is possible is because there is a lack of position price fees/limits on a number of cryptocurreny trading platforms. The implication is that if adequate fees or limits were put in place, it would demoralize and discourage the movement of large buy and sell marketplace positions.

2.6.4 Ponzi and scam schemes

Presently, there are several tokens, mining operations, investment platforms, and coins that are offering guaranteed percentage returns. There are fears that these will in the end be scams or some Ponzi schemes in which one gets their initial investment back so that they can be lured to invest the more. Since there are several uncertainties about the future of cryptocurreny, fears are everywhere and people are adamant to invest in the cryptocurreny marketplace.

2.6.5 Pump and dump initial coin offering (ICOs) schemes

Initial coin offerings (ICOs) have risen to become an integral component of the cryptocurreny marketplace. Several tokens are introduced into the marketplace through ICOs with investors purchasing these tokens within the exchange for approval money. As a result of lack of regulation, pump and dump ICO arrangements continue to be a challenge for the cryptocurreny marketplace. During an ICO, an entrepreneur behind the token massively forecast on the coin, pushing prices up as well as attracting investors. One this is realized, the investors cash out, thereby leaving the investors with valueless coins that barely have value (Lilienthal & Ahmad, 2018). The promise and hope of a quick recovery of money functions like a giant magnet that sucks thousands and millions of first time cryptocurreny investors into the pump and dump chats on telegram application.

By design, the pump and dump scheme are formulated to raise the price of low volume cryptocurrencies as well as tokens within the shortest time possible as well as to create “buy” positions at some price positions which will later be used by the pump and dump to quit their position, leaving all with a few valueless coins. There several thousands of people being duped through the pump and dump schemes daily. Houben (2015) states that the only possible way cryptocurreny exchanges can counter the challenge of pump and dump promotions is by way of enabling circuit breakers alike to the one that are presently are in existence on stock exchanges across the globe. Circuit breakers function to put temporary holds upon trading in case the price of an asset significantly rises or falls within a short period of time thus minimizing efficiency and effectiveness of price manipulation undertakings.

2.6.6 Cybercriminals activities

Right from its inception, the cryptocurreny marketplace has been beset by activities of cybercriminals and hackers. There have been reported and registered cases of high-profile cryptocurreny heists and hacks that have resulted in the loss of millions of dollars. Investors and traders have lost funds and certain cryptocurreny exchange platforms have stopped operating. The repercussion of these hacks has been characterized with the price of some cryptocurrencies considerably dropping (Houben, 2015).

In an attempt to counter these cybercriminal activities, platform operators and traders have to take several precautionary measures. Whereas some of the measures are very useful, some of them create bottlenecks that hinder the process of cryptocurreny trading, which consequently creates a trade-off between efficiency and security. Consider, for example, a case where there is a need to provide sufficient security for cryptocurreny that is held in a wallet storage. To the cybercriminal activities, some traders opt to store the substance of cryptocurreny assets within offline wallets, implying that any single time when they wish to trade, they have to transfer their assets from offline storage platforms to online ones before taking part in the trade. This creates another stress or bother within an already convoluted trading atmosphere.

Further, blockchain transactions are immutable. Thus, in case funds get stolen, there are few chances of ever recovering them. Cryptocurreny exchange platforms constantly have to better their security structures so that they can stay ahead of the thieves and hackers. Most of these security upgrades equally make the process of trading to be a lot more difficult, challenging, and cumbersome with all the sanction protocols and steps that should be carried out before a transaction is completed (Lilienthal & Ahmad, 2018).

2.6.7 Lack of uniformity in prices

Price charting is one crucial component of commodity or asset trading. There is always a need to develop price charts so that investment analysis can be carried out and trading strategies be developed. The challenge, however, with this marketplace is that prices can considerably vary on the various cryptocurreny exchange platforms. With such great price dissimilarities for a single cryptocurreny, price monitoring becomes a challenging endevour (Leng, 2018). In addition to this, the sheer extent of volatility within the marketplace as well as the challenge becomes even extra aggravated.

2.6.8 Transaction delays

The cryptocurreny marketplace is afflicted with several delays across nearly every single step of an exchange. Right from the opening of a trading account to verifying one’s identity as well as being capable of making deposits along with withdrawals, the system appears to be considerably slow (Jayachandran, 2017). Blockchain knowhow should make trade and transactions happen quicker yet it appears to take loner for trade and transactions to be sanctioned on the different chains. Issues to do with scalability have also been noted by professionals as being the major cause of delays in transactions since as blockchains get longer, additional transactions are held up within a queue awaiting for approval (Bryans, 2014). The marketplace is volatile. For this reason, delays can be expensive. Traders may end up missing out on a number of favourable positions as a result of a transaction failing to get posted on.

2.7 SWOT Analysis of Cryptocurrencies

2.7.1 Strengths

Cryptocurrencies are new investment openings or opportunities within a rapidly developing marketplace. As the marketplace continues to mature, more cryptocurrencies will begin popping up and creating an ecosystem. This implies a rapid growth and new cryptos arising with several uses. For instance, whereas Bitcoin is digital gold that has little use for black marketplace dealings, sites like Steem function to create their individual traffic and are progressively growing (Houben, 2015). The more the number of people using cryptocurrencies the higher the demand merely pushing the price up. In addition, the lack of centralization and regulations within the marketplace implies that the marketplace is purely down to marketplace forces with insignificant human intervention, the reason for which magnified price changes have been seen over the time past in the cryptocurreny market. While the price of some cryptocurrencies, like Bitcoin, have stabilized within the market, the network security continues to be bettered up by expert mining operations globally (Leng, 2018). For instance, Bitcoin transactions, according to Houben (2015), are secured by about 1.5 billion gigahertz per every second and this continues growing at an exponential rate. This makes the Bitcoin cryptocurreny to be by far the most and largest secure production blockchain all over the world since that of its runner-up, Ethereum is about 2000 gigahertzes per second protecting Ether exchanges (Shawdagor, 2018). Bryans (2014) also notes that the maturity of the cryptocurreny marketplace extends to the variety and amount of services that are being developed and the overall cryptocurreny being adopted. All data signify that the general adoption of cryptocurreny is fast growing at an unparalleled rate and that future of the market is lustrous and bright. Jayachandran (2017) states that cryptocurrencies have a high operational efficiency and functions to facilitate easier information sharing regarding certain trades or products since with the use of cryptocurrencies, traders do not need any more documents to be passed along but traders can now register all details on the blockchain. Lastly, cryptocurrencies have secure encryption as well as tamper-proof information/data storage besides functioning to eliminate a central power that has full access to the information or data.

2.7.2 Weaknesses

There are several weaknesses of cryptocurreny marketplace and cryptocurrencies. While other marketplaces are faced with frequent changes in business rules, blockchain is not. Blockchain is in most cases not modular, implying that an old encryption module cannot be replaced or changed easily (Shawdagor, 2018). Supposing that business principles change and we want to export information or data to a new blockchain with right and correct data models, a blockchain does not offer an instant out-of-the-box exit approach. Cryptocurrencies are potentially in conflict with prevailing strategies and approaches to regulatory amenableness like General Data Protection Regulation (GDPR) (Bryans, 2014). Shawdagor (2018) states that the concept of cryptocurreny is not simple and easy to grasp for any newcomer. This necessitates good education to make many people understand how the system works it mass adoption of the concept is the ultimate goal. Some cryptocurrencies have weaknesses that can still be considered as marketplace opportunities for other technologies. For instance, having been designed as a digital cash structure, Bitcoin has limitations that altcoins has identified and used as market opportunity (Houben, 2015). Also, Bitcoin’s concerns gave room for altcoins. With such loopholes, other better technologies can arise that can expose cryptocurrencies to cutthroat competitions that would only jeopardize the future of the cryptocurrencies (Bryans, 2014).

2.7.3 Opportunities

Adopting blockchain within a business significantly changes the system of the business. Blockchain functions to enable secure information and data transfer as well as payments. In addition to the Internet of Things (IoT), blockchain offers massive new openings to business persons. For instance, the system facilitates the flow of large amounts of information and data regarding products. In addition to helping merchants to send money or data securely, cryptocurrencies also assist the merchants to understand why there is a need to make the transfers in a cost effective manner. The employment of the blockchain knowhow enables people to carry out business even more efficiently and easily with international or overseas firms or partners or customers. This ease and efficiency develops as a result of faster and easier transmission of data and information or digital properties as well as a completely automated system of exchange record keeping which makes the whole process fraud free and crystal clear. This serves to simplify and somehow automate compliance and accounting. Cryptocurrencies also provide a platform for analytic research and big data. They give back power and control to the utilizers since they allow users to control who accesses their data. The world is fast becoming more digital and more globalized. Thus, more individuals will accept the blockchain concept in their everyday lives.

2.7.4 Threats

The blockchain technology is a secure and easy medium for data and money transfer. However, there is danger in taking this intrinsic simplicity for granted. There is still a great need to work out a strategy to IoT money and data transactions. This system of monetizable data and money transfers brings the question of would be the most beneficiary of the system; the people trading over the network or the individuals generating information, of the individuals managing the networks. One principal threat is that the knowhow would be so joyously be incorporated and adopted across the world that there would be no need for banking institutions. Such a huge scale shift of nearly all know-hows in every government body and company across the world would call for a lot of determinations and efforts (Eyal & Sirer, 2013) since it would need a lot of study and research and beta testing, among other concerns. Evidently, the scalability issues continue to be threat; too many exchanges (overload), notwithstanding concerted efforts that have been directed to solve the challenge. There is also the threat of unwanted centralization; large mining farms and mining pools. The threat of quantum computers in the future who will have the ability to decrypt information and data. There is also fast and hype changing environment. Also, there is often the possibility of hacks and mining attacks. Regulatory threats are also eminent upon cryptocurrencies. Gans and Halaburda (2013) observe that just like the Internet has been censored in different parts of world, cryptocurrencies are likely to face regulatory pressure in regions and places where they will threaten local governments and currencies.

CHAPTER 3: METHODOLOGY
3.1 Objective of the Chapter

This chapter aims at illustrating the methodology that will be employed for this dissertation. Further, the chapter will give the sources of information and data that will be employed to obtain the needed data for carrying out the analysis. The chapter will equally illustrate the sample size, sample data, and period for the analysis. Techniques employed to gather the study’s needed data will also be highlighted.

3.2 Research Sample

3.2.1 Sources of data

For the purpose of this study, secondary data regarding price and index information for different cryptocurrencies will be employed. This secondary data will be obtained from the cryptocurrencies index 30 (CCI30). For purposes of computing and analyzing efficiency of the cryptocurrencies in the marketplace, data from the database will be extracted in excel format. While focus will be on Bitcoin, Monero, Ethereum, Ripple, Litecoin, MaidSafeCoin, Dash, and Dogecoin, other three cryptocurrencies will also be included to help obtain a comprehensive analysis of trends and patterns in terms of market capitalization of the currencies.

3.2.2 Chosen sample period

To ensure that data gathered for a study is reliable, dependable, and consistent, there is a need to choose a short sample period (Corlu & Alper, 2015). In formed by Corlu and Alper (2015)’s view, the sample period chosen for this study will entail indices and prices of the chosen cryptocurrencies between 18/12/2018 and 19/1/2019. The event date (ED) for this study is chosen to be 20/12/2018 as it will help in calculating the cryptocurrencies’ prices and indices and also help in the identification of whether the changes would happen after the ED or not.

3.2.3 Selected sample data and data collection procedure

The event announcement that will be considered for this study is Dubai’s New Year’s Eve which took place on 31/12/2018. Coming at a time when the Rugby Sevens game and National day celebrations were ongoing, the event attracted several people from across the world. For purposes of consistency, researchers will compare data from trade of the various chosen cryptocurrencies. The intended source for this research’s pricing and indexing data is a publicly accessible site wherein trades occurring on a specific exchange are visible on the site’s interface. The site gathers as well as aggregates the visible information or data, by use of application programming interface (API). Since the site is publicly accessible, there will be no cost implication in acquiring data from the same. The researchers will use the ‘closing rate,’ which refers to the exchange rate as at the midnight Greenwich Mean Time (GMT).

3.3 Research Method
3.3.1 Event study

The research method that was employed for this study is the event study approach. According to Corlu and Alper (2015), an event study method is a statistical technique for assessing the implication or effect of an event upon the worth of a firm. Since an event study methodology can be employed to elicit the impacts of any kind of event upon the magnitude and direction of stock price variations, Chan et al. (2017) state that the technique is very versatile. An event study technique tries to gauge the valuation impacts of a corporate happening or event, by examining the reactions and data from the stock price that are surrounding the event or announcement of the same.

The general procedure of employing an event study methodology begins by using monetary marketplace data to gauge the effect of a particular event upon the value of a company or industry. Corlu and Alper (2015) assert that given the rationality that characterizes marketplaces, the impacts of a given event will immediately be reflected in security prices. This assertion insinuates that a measure of a specific event’s economic implication can be gauged by use of security prices that are observed over a short period, a fact that informed this study’s short sample study period. It is crucial to underscore that short-horizon event study periods are extra reliable compared to long-horizon event study durations (Chu et al., 2015).

By design, event studies methodologies imply the following: depending upon an approximation window ahead of an intended event, the technique serves to approximate what a normal stock return of an affected company/firm ought to be at the very day when the event should be happening and a number of days after the event (that is, within the EW). After this, the technique deducts the normal returns from the real returns to obtain the abnormal returns that is attributed to the event (Chan et al., 2017). Nonetheless, event studies may differ depending on their specifications of normal returns, with the most commonly used model of this technique is the market model (Chu et al., 2015).

3.3.2 Determination of EW, ED and CW and Data Analysis

It is likely that the marketplace realized a positive change in the cryptocurreny market capitalization before the Dubai’s New Year’s Eve. As such, the period before the event began and after it ended will be used in determining how quickly the marketplace would stabilize. The event window (EW) will, therefore, statistically be determined by the formula below:

EW = [t ∈ Z | T (1) < t ≤ T (2)] ……………………….. (Durbin & Watson, 1971)

Where T (1) = the window’s starting time, T (2) = the window’s end period, t = time-steps, t = 0 implies the event day, Z = integer numbers, and t ∈ Z = t ought to be an integer.

Length of EW = [T – (t-1)] …………………………….. (Linden, 2017)

Where T = end of window

t = start of window.

The CW, also called estimation window, entails a particular period beyond the event date. For proper computation, the researchers will ensure that the CW does not overlap with the EW. Worth noting is that while there is no agreement on the right length of a CW, most studies and researchers have used a CW ranging between 180 days and 200 days and between 10 and 20 days before the desired event (Chan et al., 2017).

Also, this study will consider variations in corporate performance before, during, and after the celebration, variations in shareholders returns or share prices. The researchers will also conduct analysis based upon share price information or data, using the formula

Abnormal Return = Actual Return – Expected Return …………………….. (Corlu & Alper, 2015).

Within the event’s overall test period (TP), the researchers will approximate abnormal return for each period about the event data (31/12/2018) using the following formula:

et = Rt – E(Rt ) ……………………………………………….( DeVries, 2016).

Correlation coefficient (r) between the cryptocurrencies under consideration will as well be computed. This will help in determining the relative strength of the cryptocurrencies against Bitcoin and the U.S. dollar (USD). Middlebrook and Hughes (2014) state that correlation coefficient is employed in statistics to gauge how robust/strong an association between two variables is. r will be obtained using the formula below:

R

Such an information will be important in determining the potential of the individual cryptocurrencies to continue surviving in the marketplace relative to the Bitcoin and to determine the future of cryptocurreny in the global marketplace.

CHAPTER 4: FINDINGS AND ANALYSIS
4.1 Objective of the Chapter

This chapter aims at employing the event study technique along with the proposed statistical models to assess the behaviour of cryptocurrencies within the study’s sample period. The chapter will provide details regarding the data that was gathered and the data relative to abnormal return, return, and anticipated return. In this chapter, an analysis of the competition between the cryptocurrencies using price information and data is carried out. Literature and media have largely focused on Bitcoin. Additionally, this chapter highlights on the various findings that were made from the study and also provides the output of the research in as a far as the objective of this study is concerned.

Global Trends and Competition between the Cryptocurrencies

Eight altcoins were used for this comparison: Bitcoin, Monero, Ethereum, Ripple, Litecoin, MaidSafeCoin, Dash, and Dogecoin. Marketplace capitalization values for these cryptocurrencies are significantly skewed. Gandal and Laburda (2018) assert that total marketplace capitalization in digital monies was about $8.2 billion as at 26th February 2014, with Bitcoin accounting for about 90% of this market capitalization. The second-largest marketplace capitalization was found to be Litecoin, which accounted for about 5% of total digital money marketplace capitalization (Bovaird, 2017). Ethereum, the currency that had the third-largest marketplace capitalization value, accounted for about 1% of the total marketplace capitalization (Clements, 2018). These coins were among the first entrants into the cryptocurreny marketplace. However, interest in cryptocurreny has increased, leading to the development of more coins, some of which like Peercoin and Litecoin were developed to help fix what their developers regarded as Bitcoin’s limitations. While developers have largely developed other cryptocurrencies to help solve the various challenges that were noted with Bitcoin, this study established that the recent surge in entry of more coins into the marketplace is as a result of two factors: the entry is considerably cheap or costless and that the founders of cryptocurrencies have made substantial profits, a finding that is supported by a study by Gans and Halaburda (2013).

Those two motivations for the entry of new currencies into the cryptocurreny marketplace (capitalizing upon potential popularity as well as fixing limitations of Bitcoin) signifies a disagreement regarding the driving force behind the demand for cryptocurrencies – whether individuals purchase them as a result of their individual potential as currencies or for anticipatory purposes. See the table below for a summary of the currencies’ market capitalization.

Table 4: Summary of the Currencies’ Market Capitalization (Erdas & Caglar, 2018).

This study establishes that both forces are operational within the marketplace, with varied implications. First is the reinforcement influence. The reinforcement influence results from a one-sided network influences that are present during the process of adopting a currency (Christin, 2013). In this regard, the researchers found out that as Bitcoin becomes extra popular, a number of people would be led to believe that Bitcoin will thrive and win “the winner-takes-all” race against other currencies. Eyal and Sirer (2013) reason that with such an expectation, the demand for Bitcoin will continue to increase or rise. The second influence is the substitution influence, which is the outcome of speculative dynamics. This study found out that as Bitcoin continues to become more costly as well as more popular, people fear that it will be too volatile (overvalued), thus look for alternative cryptocurrencies for purposes of investing. The Table 5 below shows the exchange rates of the cryptocurrencies that were used for the analysis against Bitcoin (BT

C)

.

Table 5: Exchange Rates of Chosen Cryptocurrencies versus BTC on BTC-E Exchange (Source: Excel).

The Table 5 above reports the first day (18/12/2018) and last day (19/1/2019) of data, along with the threshold date in between the first and second days (30th September 2013).

Figure 6: Variations in exchange rates of Different Cryptocurrencies versus BTC (Source: Excel).

The figure 5 above graphically represents the variations in the exchange rates of the currencies during the three distinct periods. From the Figure 5, it is possible that some currencies took off, whereas others did not. Also, the coins can be categorized into two groups. First, LTC, DASH, and XPR retained their individual values against the BTC over the time when the study was carried out, implying that they were successful, whereas D and ETH significantly declined I value during the two periods. Second, the worth of the coins that took off only increases during the second period. During the first period, as BTC becomes extra worthy, against the U.S. dollar, its value equally rises against the other currencies. During the second period, the value of BTC in U.S dollars further increases, yet the values of the successful cryptocurrencies (LTC, DASH, and XPR) rise against the BTC. Thus, during the second phase, the values of the successful currencies against the U.S dollar rise faster compared to the value of the BTC.

Undeniably, three data points are insufficient to draw conclusions. As such, the researchers also examined the correlations in the daily exchange rates of the currencies that were found to be successful as well as the U.S dollar against BTC. The outcomes are as displayed in the Tables 6(a) and 6(b) below.

Table 6(a): Correlations during the Daily Closing Prices at BTC (Source: Excel).

During the first period (a total of 152 observations were considered)

Table 6(b): Correlations during the Daily Closing Prices at BTC (Source: Excel).

During the second period (a total of 150 observations were considered)

The researchers used r($/BTC) to signify the exchange rate between $/BTC, as well as for other exchange rates. The positive correlations that were noted during the first period of the study (in Table 6(a) show that during that period, when Bitcoin rose in value against the U.S dollar, it equally rose in value against other currencies. Nonetheless, the correlations during the first period are largely weak, that is, the demand for a coin was weakly influenced by the prices of other cryptocurrencies.

During the second period, the correlations signify the trends and patterns that are noted in Figure 5 above. Specifically, this study found out that there is a significant and robust negative correlation between exchange rate r($/BTC) as well as the rates for three major cryptocurrencies, r(DASH/ BTC), r(XPR/BTC), and r(LTC/BTC) as supported by Christin (2013). This implies that when Bitcoin was increasing in value against the U.S. dollar, it was decreasing in value against Litecoin as well as other major currencies.

The other four cryptocurrencies’ prices vary in lockstep and the correlation among the same is much higher relative to the first period. To determine this, the researchers examined the same correlation at Cryptsy, a smaller exchange. The Cryptsy was employed for this analysis since, just like BTC-e, it had traded in the major digital currencies against BTC for comparatively a long span of time (Yermack, 2013). Nonetheless, unlike the BTC-e, Cryptsy did not transact in the U.S dollar. The findings of the correlations are as shown in Tables 7a and 7b.

Table 7(a): Correlations in Everyday Closing Costs at Cryptsy (Source: Excel).

During the 1st period, 117 observations were considered

Table 7(b): Correlations in Everyday Closing Costs at Cryptsy (Source: Excel).

During the 2nd period, 149 observations were considered

The results shown in Tables 7a and 7b are similar to the patterns and trends shown in Tables 6a and 6b. During the first period, the demand for a digital currency is weakly influenced by the prices of other cryptocurrencies. Nevertheless, during the second period, the prices of various cryptocurrencies move in lockstep, possibly owing to the fact that higher demand for a particular currency propels higher demand for other cryptocurrencies.

One possible explanation of these observations is that during the first period, the reinforcement influence is dominant. The demand for the most famous digital currency, Bitcoin, grows even more robust, and the demand for all other cryptocurrencies grows less strong or weaker. For the other comparatively successful cryptocurrencies, demand is not strongly related and associated (Christin, 2013). During that period, Bitcoin obtained moderate coverage within the mainstream media, yet other cryptocurrencies received none. From the results, it is reasonable to anticipate that during that time, cryptocurrencies were obtained by fanatics, possibly extra likely believing in their potential capability as cryptocurrencies. There is a possibility that Bitcoin, being the most popularized by the media, equally could win some demand from individuals who initially were not informed of cryptocurrencies.

During the second period of the study, the network influences function to drive the division between the losers and winners in the digital currency marketplace. Nonetheless, the observations in the successful cryptocurrencies are no more consistent with the reinforcement influence. The substitution influence dominants. In addition, the second phase of the study period, the interest in certain other currencies grows. The media coverage of the Bitcoin cryptocurreny is substantially during the time of the study, and some media platforms also cover other cryptocurrencies (Gandal & Laburda, 2018). As Bitcoin’s value increases with respect to the U.S dollar during the second period, the worth of the successful cryptocurrencies equally increases against the U.S dollar and at a quicker rate. This substitution influence may be the outcome of the arrival of new investors or traders to the marketplace, who obtain as well as trade the cryptocurrencies more as monetary assets relative to other cryptocurrencies capability (Christin, 2013). This study asserts that it would be improbable to maintain prices of digital coins as financial possessions if none believed in their individual potential as currency. Yermack (2013) explains that why very few cryptocurrencies are aggressively traded for a long span of time. For this reason, the researchers interpret their study’s findings by stating that for each and every four successful digital currencies, there is a group of investors and traders who have faith in its future as a legal tender.

To determine the validity of the interpretation that there is extra popular interest in cryptocurrencies during the second period, the researchers employed Google Trends. Using this, the researchers examined the major cryptocurrencies that were considered for this study. The results showed that there is more searches for Bitcoin relative to other cryptocurrencies. For instance, the correlation in the total number of searchers between Bitcoin and Litecoin is 0.95. Considering Bitcoin and Litecoin, the following result was obtained.

From the analysis, the searches for both Litecoin and Bitcoin first peaked during November, during which time the price of Bitcoin reached $215/BTC. By 18/12/2018, the price of Bitcoin had declined to $1.7.9/BTC. Starting with October 2019, the number of Google searches rose and attained a second peak during December 2019. The number for Litecoin, at this peak, was at 16 whereas that of Bitcoin was at 100. Litecoin’s peak was 5 and Bitcoin’s first peak was 62. The second Bitcoin peak was about 61% higher relative to the first peak, whereas for Litecoin, the second peak was about 220% higher relative to the first peak. Thus, there is comparatively extra interest in Litecoin during the second period of the study compared to the first one.

Alike pattern was observed for Dash. Dash searches are a proportion of Litecoin searches, and even significantly smaller proportion of Bitcoin searches. Thus, the data are not easily perceptible if graphed with other two cryptocurrencies. Looking at the searches for Dash, the currency’s searches peaked in December 2019. Using December as the baseline of Dash’s searches as 100, the cryptocurrency’s searches increases due to increased interest in possible cryptocurrencies during the second period of the study’s data.

4.4 Currency Exchanges and the Most Widely Used Cryptocurrencies

The availability of dependable and reliable currency exchanges is essential for competition among cryptocurrencies. The currency exchange marketplace has rapidly been developing over time. MT. Gox, according to Bollen (2013), was the main exchange till mid-2013. During November 2019, the Federal Bureau of Investigation (FBI) shutdown a Wells Fargo account that belonged to the Mt. Gox subsidiary, grabbing more than $2.8 million (Gandal & Laburda, 2018). This resulted in the weakening of the exchange, owing to the fact that it became hard for the U.S clients to access it. As at November 2019, Mt. Gox still remained the most important player, yet no more a dominant exchange. The greatest and largest Bitcoin exchange at that time was BTC China, with about 35% of the trades. BTC China, according to Leng (2018), only trades Bitcoin against the Chinese Yuan (CNY). Mt. Gox became the second with about 27%. The third and fourth currency exchanges for cryptocurrencies were Bistamp (with 25%) and BTC-e (with 15%) of the transactions, with these thee latter exchanges being traded against the U.S dollar.

In the case of exchanges that involving the U.S dollar and BTC, as at mid-December 2019, there were three main exchanges: Bitfinex, Bitstamp, and BTC-e. BTC-e was the first of these three to trade BTC/$, and had approximately 26% of the volume for 2019’s currency pair. Bitstamp, which purely traded BTC/$, had approximately 50% of the volume for the 2019’s currency pair, whereas Bitfinex, which entered later after the two, had about 27% of this marketplace. Several other exchanges were active in the $/BTC currency pair, yet the volume that was traded was considerably small.

In the case of LTC/USD and LTC/BTC trades, BTC-e was the leading exchange with about 97% and 90%, respectively, of the volume of exchanges for these two legal tender pairs. Additionally, in the case of LTC/BTC, five other trades had non-trivial exchange, that is more than 1%, in this legal tender pair. In the LTC/USD, only a single exchange had above 1%. For DASH/BTC, a similar picture to LTC/BTC was noted. BTC-e led by approximately 90% of the marketplace. Three other trades had above 1%. In the case of Ripple, XRP/BTC, BTC-e had above 95% of the trade volume.

Several new transactions have entered the cryptocurreny marketplace. As a result of the multiplicity of exchanges within the cryptocurreny marketplace, the questions emerges whether the prices at the trades and exchanges differ, and whether they permit for arbitrage chances. Shall we keep holding to the knowledge that in the long run, there will still be these multiple exchanges within the cryptocurreny marketplace?

4.5 Transacting Within the BTC-E Exchange

BTC-e transacts several currencies. Based upon the pairs that are traded at BTC-e as well as the closing price data, the researchers examined whether triangular transaction is profitable. That is, whether transacting the BTC from US dollar, then for BTC for currency C, and lastly C for the US dollar is profitable at closing time. Due to the depth of the analysis, the researchers used Dash, Litecoin, and Ripple for currency C.

Bratspies (2018) states that BTC-e permits for exchanges of the USD/BTC, LTC/BTC, and USD/LTC. According to Dupont (2012), there is not triangular openings among these cryptocurrencies implying that r (LTC/BTC) = r r [USD/BTC) (USD/LTC]. For this reason, the researchers calculated the ratio between r(LTC/BTC) and r r(USD/BTC) (USD/LTC) for purposes of this study’s analysis. Also, no trading openings imply that this ratio ought to be equivalent to exactly one.

From the analysis, the researchers revealed that the ratio’s mean value is 0.999 during the first period, and 1.000 during the second phase of the study (Clements, 2018). The researchers then proceeded to look at the data’s first percentile as well as the 99th percentile. The analysis showed that during the first period, 98% of the total observations dropped between 1.013 and 0.986. For this reason, less than 2% of the observations had triangular exchange openings producing gross returns above 1% at the closing of the period (ESMA et al., 2018). There is an insignificant difference between the periods since during the second period, 98% of the total observations dropped between 1.012 and 0.985.

A similar procedure was followed for Dash and then for Ripple. For these two, the researchers were only able to examine the second period owing to the fact that there was no USD/XRP or USD/DASH during the first period of the study. For the case of Dash, the ratio’s mean value during the second period of the study is 1.001, and 98% of the total observations during that time dropped between 1.021 and 0.978 (Dupont, 2012). That is, 2% of the total observations permit for a minimum of 2% of gain on a triangular transaction. The outcomes were alike to that of Ripple – the ratio’s mean value is 1.001, and 98% of the total observations dropped between 1.021 and 0.970 (Fleder et al., 2014). Thus, comparing with Litecoin, there are significantly large gross triangular transaction opportunities with Ripple and Dash. It is justifiable that since the volumes that were traded in these legal tenders were lower relative to the Litecoin upon the BTC-e exchange, we can anticipate extra liquid cryptocurreny marketplaces to provide fewer triangular trading openings.

4.6 Tests for Transaction Openings across Exchanges

In this section, the researchers examined whether there are profitable openings from trading alike pairs of cryptocurrencies on two distinct exchanges. The researchers examined potential or possible trades entailing USD/BTC owing to the fact that this is the most heavily transacted cryptocurreny pair by volume. Additionally, the study’s data was from closing time, which is midnight GMT. The researchers analyzed the dissimilarities in prices, minus accounting for the costs involved in making trades.

The researchers began by comparing the exchange rate between the BTC and US dollar on Bitstamp and BTC-e, which is the largest ad dominant exchange that is transacting BTC/USD (Fleder et al., 2014). Specifically, the researchers analyzed the ration between r(USD/BTC, at BTC-e) and r(USD/BTC at Bitstamp). No transaction openings would suggest this ratio to be equivalent to 1. Nevertheless, the researchers observed that the ratio takes a variety of values above and below 1, as shown in the Table 8 below.

Table 8: Distribution of Ratio r(USD/BTC, at BTC-E) / [r(USD/BTC, at Bitstamp] (Source: Excel).

From Table 8 above, the ratio’s mean is 0.980 dung the first period and 0.978 during the second period of the study. These findings are not statistically different from 1. Nevertheless, for the trading chance, it is never the average that matters, yet the realized values that fall away from 1 (ESMA et al., 2018). During the first period of the study, the 75th % point of distribution of the data was 0.987, falling below 1. This implies that on a number of days, Bitcoin was comparatively less expensive on BTC-e compared to Bitstamp, and on half of the days during that period, the discrepancy in prices would produce above 2% benefit (Goldberg, 2018). The study found out that there days when Bitcoin was less expensive on Bitstamp, yet those days are fewer, and the yield is above 2% in this regard for only two days (ESMA et al., 2018).

The standard deviation of the ratios was found to increase from the first period’s 0.016 to the second period’s 0.027. The study revealed that this was propelled by a few outliers. During the first period, the 5th % was 0.96. That means that for 5% of the days that were conserved for this discussion, the prices at midnight at the two trading were dissimilar by a minimum of 4%. The lowest value during the first period was found to be 0.930. During the second period, on 10% of the total days that were considered, the prices showed discrepancy by a minimum of 5% and on three days of the study, the discrepancy surpassed 10% with the ratio’s lowest value being 0.87330.

Notwithstanding other factors, it cannot be possible to merely conclude that there were extra trading opportunities during the second phase of the study across the cryptocurrencies. For instance, the median for the second phase of the study was comparatively close to 1 relative to during the first phase of the study. Instead, there were less number of days that registered substantially larger trading openings for cryptocurrencies during the second phase of the study, whereas on most days those openings were comparatively less profitable relative to during the first phase of the study.

Further, the researchers examined at the openings for Litecoin. They compared the exchange rate between LTC and BTC on Bitfinex and BTC-e, owing to the fact that both trade LTC/$. Particularly, the researchers analyzed the ratio between r(USD/LTC, at BTC-e) and r(USD/LTC at Bitfinex during the second period (Fleder et al., 2014). There are no trading openings that would suggest that this ratio be equivalent to 1. Nonetheless, the researchers observed that the mean of the ratio for the data was 0.987 and the 5th % point of the data’s distribution was 0.967 (ESMA et al., 2018). As such, on a number of days during the second period of the study, the closing prices exhibited differences of more than 3%, implying comparatively large gross transaction openings on these days. Cumulatively, this data imply that gross transaction opportunities were greater through transactions or exchanges as compared to during exchanges. This is in agreement with the findings of a study by Gup (2014).

4.6 Similarities and Differences between Bitcoin and Other Cryptocurrencies

4.6.1 Bitcoin

Bitcoin runs an open and permission less blockchain, allowing anybody to join and quit the crytpocurrency’s public connection at their own volition without necessarily requiring some pre-approval by some central person or entity (Goldberg, 2018). All that is required to join the cryptocurrency’s network and add a transaction to a ledger is a computer upon which the pertinent software is installed. Additionally, Bitcoin can directly be converted into fiat currency since it can be bought with as well as directly converted into fiat legal tender on a wide array of cryptocurreny exchanges. Of the cryptocurrencies that are inexistent, Bitcoin is the one that is easily convertible into fiat legal tender.

Bitcoin is also used as a medium of transaction or exchange. Bitcoin, according to Gup (2014), is being accepted as an authentic source of funds by a fairly large number of online traders and merchants, among which different large firms (Goldberg, 2018). For this reason, it can be qualified and quantified as a medium of exchange. Bitcoin is a pseudo-anonymous currency. In most cases, Bitcoin is characterized as an unspecified coin: despite the fact that everyone can verify the chain exchanges on public ledger basis. Nonetheless, this anonymous characteristic is far from being absolute. It is technically feasible, though very expensive and intricate, to recognize the parties that are behind any single Bitcoin transaction by bringing together different factors that accompany such exchanges (Hacker & Thomale, 2017).

4.6.2 Ethereum

Just like Bitcoins, Ethereum also uses open, permission-less blockchain. Also, Ethereum can as well as be directly converted into fiat coin. It is also a medium of exchange. Like Bitcoin, ether is fast being accepted as a medium of exchange by the increasing number of people and merchants using it. Ether is also a pseudo-anonymous currency.

4.6.3 Ripple

Ripple cryptocurreny runs an open but permissioned blockchain. Ripple, unlike the Ethereum and Bitcoin, runs a permissioned blockchain since Ripple (Labs) Inc., the firm behind Ripple, determines who may role play a transaction validator upon its network (Goldberg, 2018). Since it is accessible and can be viewed by any person, Ripple’s blockchain is regarded public (Shobhit, 2018). Just like Ethereum and Bitcoin, Ripple can also be converted into a fiat coin. It is also used as a medium of exchange. Other than the increasing number of online merchants and traders suing the cryptocurreny, there are speculations and buzzes that Amazon may be trying to employ Ripple in the near future (Hacker & Thomale, 2017). Lastly, Ripple is a pseudo-anonymous currency.

4.6.4 Litecoin

Similar to Bitcoin and Ethereum, Litecoin runs permission-less, open blockchain. It can be directly converted into fiat coin. It also serves as a medium of exchange due to the fact that it is widely used. It is a pseudo-anonymous currency, implying that everyone has the capability of verifying the chain of Litecoin exchanges based on public ledgers, which may make it technically possible to recognize the currency’s sender and/or receiver (Shobhit, 2018). Recently, Litecoin introduced a new knowhow into the world of cryptocurreny, the atomic swap. Asolo (2018) states that the atomic swap allows for P2P cross-chain trade or exchange of a given cryptocurreny for another one, minus the need of a third entity or party (Herlin-Karnell & Ryder, 2017). In practice, the use of atomic swap is not anything easy. Being a new technology that is yet in its infancy, the adoption of the technology needs a lot knowledge in IT (Marshall, 2017).

4.6.5 Monero

Monero also joins the category of cryptocurrencies that run permission-less blockchain, is directly convertible into a fiat coin, and can be used as a medium of exchange (Heller, 2017). However, the currency is different from the aforementioned ones because it is an anonymous currency as opposed to being a pseudo-anonymous one. In a pseudo-anonymous currency, exchanges are often openly traceable and verifiable by anyone. In practice, the sending as well as receiving addresses like exchanges could be associated with an individual’s real-life individuality/identity (Asolo, 2018). It is at this point where Monero asserts to be distinct. It places itself as a secure, untraceable, and private cryptocurreny (Herlin-Karnell, & Ryder, 2017). This high level or degree of anonymity is realized through two distinct methods: ring confidential exchanges and stealth addresses.

4.6.6 Dash

Dash is among the cryptocurrencies that run permission-less, open blockchain, can directly be converted into a fiat coin, and is used as a medium of exchange (Herlin-Karnell, & Ryder, 2017). Asolo (2018) states that Dash is an (optional) anonymous currency. Dash’s blockchain, just like Bitcoin’s blockchain, is transparent by design and default, implying that its transactions are often openly traceable and verifiable on the blockchain. To provide its utilizers monetary privacy, the cryptocurreny gives the choice to use a feature referred to as PrivateSend, a functionality that obscures the origins of a utilizer’s funds via a process referred to as “mixing” (Heller, 2017).

CHAPTER 5: CONCLUSION
5.1 Objective of the Chapter

This chapter aims at providing concluding remarks regarding this study’s aims and research questions based upon the empirical results that are gotten from the research strategy that was employed in chapter three of this work. This chapter also highlights the limitations of the study and scope for further research.

5.2 Summary

In this paper, the nascent marketplace of cryptocurrencies was investigated. The researchers fundamentally examined competition between various cryptocurrencies, concentrating on Bitcoin, Monero, Ethereum, Ripple, Litecoin, MaidSafeCoin, Dash, and Dogecoin. However, for a deeper understanding, the paper included other cryptocurrencies. Within this environment, network influences play a crucial role. The study’s data were divided into two: between May and September 2013 and between October 2013 and February 2014. During the first period of the study, Bitcoin’s prices were relatively stable, whereas during the second period, it was substantially volatile.

The study found out that during the first period, the popularity of Bitcoin increased against the U.S dollar as well as other cryptocurrencies. However, during the second period, the prices of other currencies increased even the more against the U.S dollar as compared to how Bitcoin did. From this, the paper deuces that it appears that Bitcoin, through its original popularity, generally “opened up” the marketplace for other cryptocurrencies. Simultaneously, Bitcoin relished a first-mover competitive advantage or advantage within an atmosphere that had network influences. Something interesting is that even Litecoin, which is regarded as the second most robust cryptocurreny, dropped substantially against Bitcoin during the third part of the analysis. Overall, as of 31st November 2019, Bitcoin contributed for about 95% of the total cryptocurreny marketplace capitalization.

5.3 Prosecution of the Hypotheses

This study was guided by two hypotheses. Concerning H1, the study has shown that in the long term, it is not vivid whether the substantial strengthening of BTC that Bitcoin has enjoyed over other cryptocurrencies will be adequate to help it keep the dominant position. For instance, latest reports indicate that Litecoin is quickly become extra acceptable by traders and merchants as a lower-cost substitute to Bitcoin. Therefore, we reject the first hypothesis that states that “Bitcoin is to remain the world’s leading cryptocurreny in terms of marketplace capitalization.”

Concerning the second hypothesis, the study has shown that cryptocurrency appears to have moved past the preliminary adoption phase that new know-hows experience. Bitcoin has continued to carve itself a niche marketplace, which could function to help in the advancement of cryptocurrencies further into the mainstream, or can as well be the main cause of the market’s falling. Cryptocurrencies are yet in their infancy stage, and it is hard to see whether they at one time be able to find a true mainstream presence within the world’s marketplace. Bitcoin community is trying whatever possible to push the mainstream via innovation as well as solving traditional challenges. With other cryptocurrencies arising and gaining users and some nations like Iceland beginning to start their own national cryptocurrencies, it is possible that the future holds some place for cryptocurrencies as a principal solution, and Bitcoin will be crucial in paving the way for other cryptocurrencies to thrive. Additionally, Latin America and the European marketplaces are enlarging with Bitcoin and other cryptocurrencies’ transactions, implying a true validity. This assertion leads us to fail to reject second hypothesis, which states that “the use of cryptocurreny is likely to continue increasing globally.”

5.4 Limitations of the Study

Undeniably, three data points are insufficient to draw conclusions. In this study, with everyday closing exchange rates, the study only looked at arbitrage openings in a comment a day. They checked whether the discrepancies in prices functioned to allow for profitable triangular opportunities in the BTC-e trade, as well as profitable trading openings across the BTC-e trade along with other transactions at a given time. Such assessment leaves out a number of other possible arbitrage openings, like selling at noon and purchasing at midnight. Another limitation was time constraints as well as issues related to data gathering. The process of gathering information or data entailed issues related to changes in Bitcoin’s values. Therefore, data had to be adjusted in accordance with the constant changes in value. Moreover, owing to the fact that cryptocurreny is an emerging notion, there was limited information, literature, and studies on the technology. Therefore, finding pertinent data or information was considerably difficult.

5.5 Further Research

In addition to the abovementioned limitations, this study does not account for various costs of making transactions; this would influence the realization of the exchange benefits. As such, there is a need that those concerns and issues be investigated in future studies and research. Additionally, there are several topics concerning Bitcoin and other cryptocurrencies that need to be explored. All-encompassing studies ought to be carried out upon the economic impacts of Bitcoin on a long term standing fiat coin performance, as well as compare the outcomes to countries that are starting to employ state-financed cryptocurrencies. Similarly, extra data (over time) will foster more research into competition within the cryptocurreny marketplace and will for sure bring additional insights regarding dynamics of this marketplace.

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18/12/2018 Beginning of Data r($/BTC) r(LTC/BTC)

r(DASH/BT

C) r(XPR/BTC)

r(MAID/BT

C)

r(XMR/BTC

) r(D/BTC) r(ETH/BTC) 106.8 31.3 378.8 97.8 31.9 197.2 198.4 341.7 20/12/2018 r($/BTC) r(LTC/BTC) r(DASH/BTC) r(XPR/BTC) r(MAID/BTC) r(XMR/BTC) r(D/BTC) r(ETH/BTC) 123 56.6 471.7 246.3 33.5 1111.0999999999999 769.2 489.2 19/1/2019

End of Data

r($/BTC) r(LTC/BTC) r(DASH/BTC) r(XPR/BTC) r(MAID/BTC) r(XMR/BTC) r(D/BTC) r(ETH/BTC) 537.5 40.9 166.1 166.7 74.5 2500 2777.8 213

21 | Page

Statistics Bitcoin Dash Dogecoin Litecoin MaidSafeCoin Monero Ripple Euro

Minimum −0.159 −0.580 −0.385 −0.278 −0.404 −0.560 −0.299 −0.046

Q1 −0.011 −0.019 −0.009 −0.010 −0.026 −0.026 −0.014 −0.004

Median −0.001 0.0030.0020−0.001 0.0020.0020

Mean −0.001 −0.00100.001−0.002 −0.001 −0.000 −0.00004

Q30.0080.020.0150.0090.0230.0280.0170.003

Maximum 0.2050.4110.1880.4330.2410.2770.2880.038

Skewness 0.758−1.487 −2.506 0.756−0.478 −1.414 −0.401 −0.145

Kurtosis 11.56826.80524.43422.3858.5213.95413.8182.662

SD 0.0280.0510.0420.0420.0540.0620.0460.006

Variance 0.0010.0030.0020.0020.0030.0040.0020.00004

CV −47.976 −84.519 89.78245.619−21.499 −54.548 −96.585 −143.498

Range 0.3640.9910.5730.7110.6450.8370.5870.085

IQR 0.0190.0390.0230.0190.0490.0540.030.007

NameSymbolMarket CapitalizationSupply Limit

BitcoinBTC$124.969.093.16121 million

EthereumETH$57.462.517.858TBD

RippleXRP$23.790.387.789100 billion

DogecoinD$17.159.025.22521 million

LitecoinLTC$6.704.709.57284 million

MaidSafeCoinMAID$5.128.373.973100 billion

CardanoADA$5.034.129.65145 billion

IOTAMIOTA$4.038.240.5722,779,530,283,277,760

NEONEO$3.386.383.000100 million

MoneroXMR$2.626.586.26018,4 million

DashDASH$2.592.894.54417.74 – 18.92 million

18/12/2018 19/1/2019

Beginning of
Data
End of Data

r($/BTC)106.8123537.5

r(LTC/BTC)31.356.640.9

r(DASH/BT
C)

378.8471.7166.1

r(XPR/BTC)97.8246.3166.7

r(MAID/BT
C)

31.933.574.5

r(XMR/BTC
)

197.21111.12500

r(D/BTC)198.4769.22777.8

r(ETH/BTC)341.7489.2213

Currency20/12/2018

r(USD/BTC)

r(LTC/BTC)r(DASH/BTC)r(XPR/BTC)

r(BTC/USD)1

r(LTC/BTC) -0.781

r(DASH/ BTC) -0.770.931

r(XPR/BTC)-0.610.910.921

r(USD/BTC)r(LTC/BTC)r(DASH/BTC)r(XPR/BTC)
r(BTC/USD)1

r(LTC/BTC) 0.781

r(DASH/ BTC) 0.090.311

r(XPR/BTC)0.280.720.451

r(LTC/BTC)r(DASH/BTC)r(XPR/BTC)

r(LTC/BTC) 1

r(DASH/ BTC) 0.151

r(XPR/BTC)0.190.321

r(LTC/BTC)r(DASH/BTC)r(XPR/BTC)
r(LTC/BTC) 1

r(DASH/ BTC) 0.931

r(XPR/BTC)0.910.911

1st Period2nd Period

No. of Observations 104148

Mean 0.98060.9784

Std0.01630.0265

Percentiles

1%

0.94690.8737

5%0.96020.9343

10%0.96350.9497

25%0.96940.9686

50%0.97970.9808

75%0.98720.9959

90%1.00051.0036

95%1.00741.0093

99%

1.03721.0296

Smallest Values

0.93040.8734

0.94690.8737

0.94860.8792

0.95870.9043

Largest Values

1.01681.0171

1.01711.0193

1.03721.0296

1.03771.0379

Statistics Bitcoin Dash Dogecoin Litecoin MaidSafeCoin Monero Ripple Euro

Minimum 192.71.17801.2690.0120.2350.0030.626

Q1273.62.57703.0910.020.4910.0060.736

Median 415.23.62303.6620.0290.8110.0070.779

Mean 447.45.38503.6590.0462.3550.0080.83

Q35937.92104.0210.0741.970.0080.856

Maximum 114017.5609.7930.15217.590.0281.207

Skewness 0.8411.0060.4171.3630.8492.1082.5431.127

Kurtosis 3.0962.9923.1756.6212.5036.52610.6933.067

SD 193.2413.58301.4330.0323.3970.0040.142

Variance 37,342.1612.83802.0530.00111.54300.02

CV 0.4320.6650.2940.3920.6951.4430.4710.171

Range 946.93816.38508.5240.1417.3580.0250.581

IQR 319.45.34400.930.0541.4790.0020.119

Dissert

at

ion

Title: The state of public awareness regarding cryptocurrencies in the United Arab Emirates.

by

Aditya Mishra

Dissertation Supervisor: Dr

.

Ullas Rao

Word Count: 1

3

,002

Dissertation submitted in partial fulfilment

of the degree of

MA (Hons) Accountancy and Finance

at

School of Social Sciences, Heriot-Watt University

Edinburgh

March 2019

Acknowledgements and Declaration of Authorship

I would like to express my sincere gratitude to Dr. Ullas Rao my dissertation supervisor for his support, guidance and valuable advice throughout my research. His guidance drove me in the right direction for the research. I would also like to thank Dr. Esinath Ndiweni for her support provided throughout my research. I would also like to thank all the participants who took part in this survey helping me to gather important information without whom this study would not have been possible. Last but not least, I want to thank my family and friends who have supported me throughout my time at university and in giving me the determination to complete my dissertation.

Declaration of Authorship

I, Aditya Mishra, declare that this dissertation is the result of my own work. I have made full acknowledgement of the work and ideas of others wherever appropriate and a list of references is included in the end. I verify that I have read and understood the SML Undergraduate Dissertation Courses: Regulations and Procedures. I also confirm that I attained ethical approval for my study in the approved manner. I understand that as a student I am required to abide by the Regulations of the University and its discipline and ethical policy.

Signature: _______________________

Date: __________________

Abstract

The recent rapid rise in prices of cryptocurrencies and its crash has gained the attention of people who were still unaware of them. The literature on cryptocurrencies is scarce although now rapidly increasing. Many investors have gained, and a lot lost in the ‘crypto bubble’ of 2017. However, despite its recent popularity, there still seems to be a majority of the general public who still have no idea what bitcoin or cryptocurrencies are and its usefulness. It is without a doubt that cryptocurrencies will be becoming more common and will gain a lot more users over the years.

The focus of this research is to study the current state of awareness among the general public about cryptocurrencies in the United Arab Emirates. A questionnaire was asked to be filled by people working in various disciplines to get heterogeneous responses. Questions were related to the current understanding and willingness of people to use cryptocurrencies and also why they would be reluctant to do so.

In summary, it was found within the research that there is a lack of awareness and understanding about cryptocurrencies amongst residents in the U.A.E. Young generations are more willing to adopt new innovative technologies. People who invest in shares are more likely to invest in cryptocurrencies then those who invest in commodities or bonds. It was also found that there are mixed responses when it comes to regulation on cryptocurrencies by the government, however, it seems that regulation would be a big boost for cryptocurrencies to raise trust and awareness amongst people.

Future researchers can focus more on studying multiple cryptocurrencies and the culture that form one. Studies are also lacking in consumer behaviors towards cryptocurrencies. There are currently a lot of misunderstands and information asymmetry when it comes to cryptocurrencies. Research also needs to be done on building up more awareness of cryptocurrencies to build a stronger user base and increase the applications. More studies need to be performed looking at how cryptocurrencies could be brought mainstream.

Table of Contents
Acknowledgement and Declaration of Authorship 2
Abstract 3
Table of contents 4
List of abbreviations 6
List of Figures 6
Chapter One: Introduction 8
1.0 Introduction 8
1.1 Background information 8
1.1.1 Research objectives 9
1.1.2 Value of research 10
1.2 Overview of Research methodology 10
1.3 Contribution 11
1.4 Structure of this dissertation 11
Chapter Two: Literature Review 13
2.0 Introduction 13
2.1 Origins of cryptocurrency 13
2.2 How cryptocurerncies work 15
2.2 Commodity-Backed cryptocurrencies 19
2.2.1 Cryptocurrencies based on Sharia law 20
2.3 More insights into current research 21
2.3.1 Innovation diffusion theory 28
2.3.2 Technology acceptance model 28
2.3.3 Crowdfunding and ICOs……………………………………………………..29

2.4 Links to illegal activities and cause for regulation

31

2.5 Chapter summary

34
Chapter Three: Methodology 35
3.0 Introduction 35

3.1 Research strategy

35
3.1.1 Ontology and epistemology 36
3.1.2 Epistemological orientation Interpretivism vs Positivism……..…………..….36
3.1.3Ontological orientation Objectivism vs Constructivism……………………..36
3.2 Research Literature 37

3.3 Data collection

37
3.4 Data analysis framework 39
3.5 Limitations 39
3.6 Conclusion 40
Chapter Four: Results and Analysis 41
4.0 Introduction 41
4.1 Descriptive analysis and discussion 41
4.2 Conclusion 57
Chapter Five: Conclusion 58
5.0 Introduction 58
5.1 Summary of findings 58
5.2 Implication and recommendations 59

5.3 Limitation and further research direction

60
Reference List 61
Appendix A: Blank Questionnaire form 68

List of abbreviations

ICO

Initial coin offerings

Altcoins

Alternatives to bitcoins

Sharia compliant

In this context of study means coins which are complaint with Islamic laws and principles

DLT

Distributed Ledger Technology

BTC

Bitcoin

EMH

Efficient Market Hypothesis

List of Figures

Fig 1. Source: trends.google.com

Fig 2. Hash rate for bitcoin. Source: (blockchain.com,2019

Fig 3. Factors affecting cryptocurrencies price, from (sovebetov,2018).

Fig 4. categories of risk, (Kiran and Stannett, 2014).

Fig

5.

Factors affecting cryptocurrencies price, from (Chuen et al., 2017).

Fig.6 status of cryptocurrencies of different countries, (Sovbetov,2018).

Fig 7. Q1 – What is your gender?

Fig 8. Age group of participants

Fig 9. Age difference’s compared with gender

Fig10. First instance of knowing about cryptocurrencies.

Fig 11. Participants view on popularity of cryptocurrencies

Fig 12. Cryptocurrencies and cyber security

Fig 13. Ownership of cryptocurrencies

Fig 14. Cryptocurrencies vs fiat currencies

Fig 15. Commodities usually invested in.

Fig

16.

Riskiness of cryptocurrencies

Fig 17. Comparison of investor risk ideologies of traditional assets vs cryptocurrencies

Fig 18. Acceptance level of cryptocurrencies in the UAE.

Fig 19. Transaction rate of cryptocurrencies due to zero transaction costs

Fig 20. Respondents view on future cryptocurrencies prices

Fig 21. Effect of intangibles on investment decision

Fig 22. View on regulation in the UAE

Chapter One: Introduction

1.0 Introduction

This chapter aims to provide a synopsis of this dissertation. Chapter one is organized as follows: background information, an overview of the research methodology, brief look of key findings, contribution provided and the remaining structure of this dissertation.

1.1 Background

The age of digitization we are currently in possess major changes in regard to classifying financial operations. Cash is getting digitized not just in ways of virtual cryptocurrencies but also current fiat currencies by the use of apps. But cryptocurrencies have always somewhat been a mystery to most of the population due to its complex working system. Its underlying use of blockchain technology also confuses some with hi-tech words and information technology related terms. With the invention of Bitcoin in 2009, the world had seen its first cryptocurrency. Although unaware of its importance and use. Over the years many Altcoins (alternates to bitcoins) have been issued and gained substantial market capitalizations, upwards of billions of dollars. Over the last decade, research interests in cryptocurrencies have risen. Governments have also taken notice of them, some of them even introducing regulations regarding them.

According to Google Trends (Fig. 1), Bitcoin was the second most trending global news of 2017 which shows that more and more people are taking interests in knowing what it is.

Fig 1. Source: trends.google.com

There are ongoing debates on whether to classify cryptocurrencies as investment assets or currencies because they function as both simultaneously. The notion has been more towards classifying it as a commodity. In the midst of all this confusion and complications cryptocurrencies have also been linked to criminal activities which cause further fear to the naïve from using them. There is significant information asymmetry when it comes to cryptocurrencies or rather the lack of information and knowledge itself. Firms are also starting to consider launching ICOs (Initial coin offerings) as a source of finance. A lot of advancements and improvements have been made to the workings of cryptocurrencies over time. There are also new types of cryptocurrencies coming into the picture like commodity backed cryptocurrencies (e.g., OneGram which is gold backed coin launched in Dubai which is also compliant with sharia law). However, the success of all such prospects depends on the awareness, transparency, and knowledge of people on cryptocurrencies. Due to the lack of public awareness, there is a misunderstanding of cryptocurrency. People have not had the time to educate themselves on the topic (Baur, Bühler, Bick, & Bonorden, 2015). Even though people have embraced the idea of cryptocurrencies, many have not weighed the pros and cons, which could make them vulnerable to being scammed and lose all their wealth. Hence this study aims to look at the current state of awareness among people. It looks at the topic from the perspective of the general public and their attitude towards cryptocurrencies. Cryptocurrencies and its various related aspects are also discussed in this paper.

1.1.1 Research aims and objectives

This study aims to assess the awareness and knowledge of cryptocurrencies amongst the general public who have earnings and capacity to make investments. It also tries to bring out the reasons why some people are still hesitant to use cryptocurrencies and their attitude towards them. In addition, it will gather the opinions of participants towards the current state of cryptocurrencies and where it stands regarding using them in the first place.

To form an understanding of the issues mentioned above the research objectives are created:

· Objective 1 – To explore the workings, uses and various types of cryptocurrencies available in the market.

· Objective 2 – To identify the critically the benefits and flaws of cryptocurrencies over fiat currencies.

· Objective 3 – To understand the role of cryptocurrencies in the fields of investment and financing with an overview on international regulations about them.

· Objective 4 – To understand by interpreting the data collected the reasons for low level use of Cryptocurrencies.

1.1.2 Value of Study

The concept of cryptocurrencies although is now a decade old, research has only gained momentum a couple of years ago. There is still intensive empirical research to be done and a lot more to explore in this field. We need to gain more knowledge to eliminate misunderstandings, increase transparency while developing and improving upon the current technology on cryptocurrencies. Researches are still debating upon the classifications of cryptocurrencies as an investment asset or a competitor to widely used fiat currencies. Hence it still remains a widely controversial and less researched topic. This research will not only educate the reader on cryptocurrencies but also provide useful insight to the current perception of the general public on them, which can be useful for retailers or investors thinking of adopting cryptocurrencies as payment methods. The results of this research will signal as to why consumers are not willing to accept or are willing to transact in cryptocurrencies. It will build upon the existing literature considering user perception into picture.

1.2 Overview of Research methodology

The study adopted a qualitative research approach with inductive research philosophy to generate a deeper understating of the subject area. A questionnaire was used with a mix of qualitative and quantitative data to some aspect to gather information on the awareness of cryptocurrencies amongst the participants. The results were then interpreted stating the reasons and the implication of the results obtained. The research is conducted under the interpretivist paradigm as it develops ideas through induction from the data and tries to understand what is happening.

1.3 Contribution

The most interesting piece of this research is the attitude of investors towards cryptocurrencies. This will support future research understanding the behavior of people towards cryptocurrencies and if it differs while dealing with other asset classes. Hence this research is distinctive and adds to the existing knowledge in noteworthy ways. Firstly, it will study the psychology behind the adoption of cryptocurrencies by the people. This will help in making transparency clearer, and which could help generate alternative types of cryptocurrencies unlike the one’s today which are not that preferred by people today. Secondly, it will also find out if there are gender and age biases when it comes to the general awareness of cryptocurrencies. The results of this could clarify the demographic which is likely to use this technology and adopt them; this can potentially be advantageous to companies to use this information to more efficiently allocate their resources or for those who are just getting started with implementing cryptocurrencies. Furthermore, the one hundred plus responses to the study from participants in various disciplines and industries should add credibility to the research and can help future researches with similar areas of focus.

Lastly, this research also contributes to the scant literature on new asset classes of cryptocurrencies and will be one of the very first studies to look at the level of awareness of cryptocurrencies. This research will stand out from the existing ones that focus more on volatility, classifications and, economic and legal perspectives. This study, therefore, extends the literature by analyzing the state of awareness acceptance, and usage of cryptocurrencies amongst people post the crash of 2018.

1.4 Dissertation Structure

In what follows from here on, the rest of the paper is structured as follows: Chapter two will provide a theoretical context in understanding on the workings of cryptocurrencies while identifying the gaps in existing literature. Chapter three will build a research methodology which is best suited to help answer the research question and explaining how the research was designed. Chapter four will analyze and interpret the results from the data collected. The last section of this study, Chapter five will conclude upon the findings of this research while also proving recommendations for new investors and users into the field. It will also consider the limitations of this research and possible future areas of study.

Chapter Two: Literature Review

2.0 Introduction

This section aims to deliver a detailed summary on understanding cryptocurrencies. It also reviews the current literature on cryptocurrencies along with any gaps that occur within the literature. This attempts to meet the objective of exploring the workings and types of cryptocurrencies as well as its pros and cons. The chapter is divided in to five sub sections: Origins and need for cryptocurrencies, how cryptocurrencies work, commodity-backed cryptocurrencies, current research and evidences, links to illegal activities and cause for regulation, and chapter summary.

2.1 Origins of cryptocurrencies

What are cryptocurrencies?

Cryptocurrencies are digital tokens that are created and stored digitally. They use strong cryptography to keep them secure. The first successful cryptocurrency ‘Bitcoin’ (₿) was introduced in the year 2009 right after the financial crisis of 2008. Someone by the name of Satoshi Nakamoto published a paper on the bitcoin.org forum in 2008, called ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ in which it is explained how bitcoin would work and the blockchain technology that is implemented under. It is still a mystery as to who this person is as the identity has not been revealed. It is interesting to note that Satoshi Nakamoto invented the blockchain technology to work along with bitcoin (Nakamoto, 2008). Bitcoin was devised to not only challenge the current form of currencies but also brought along with it many advantages. It is assumed that Satoshi launched bitcoin after the financial crisis of 2008 as he saw a need for a revolutionary system, one that wouldn’t cause panic in the economy in case of market crashes. Cryptocurrencies can be seen as a subset of digital currencies which are painful to counterfeit (Gilpin,2014). Cryptocurrencies use a peer-to-peer method for instant payments. They are not controlled by a central bank or the government and are hence often mentioned as decentralized currencies.

Bitcoin challenges to overcome the flaws of fiat currency, functioning as a digital currency with a limited supply and growth rate embedded within its algorithm. According to the quantity theory of money, it suggests that hyperinflation is the result of increasing the money supply in the long run (Pollin, 1991). During 2008 the U.S government used Quantitative easing to create more money electronically to stimulate economic growth. Traditional fiat currency can cause problems like inflation due to this. However, since bitcoin is limited to an output of 21 million, this would cause the currency to be immune to inflations. On the other hand, since bitcoin will get rarer over time, it causes people to hoard on it rather than spend it, which could lead to a state of depression. Governments or other central authorities cannot control the supply of Bitcoins (Yermack, 2013). Although the acceptance of cryptocurrencies is growing it is still limited.

Cryptocurrencies do not have a physical existence in any way shape or form and can be used in online transactions as a medium of exchange. These transactions are also under the control of its network (Chohan, 2017). Users can even do microtransactions for as small as a Satoshi which is 0.00000001BTC. A Satoshi is a bitcoin to eight decimal places. It lowest denomination is called one Satoshi or 0.00000001BTC, which is worth about $0.0000398780 today. Like other currencies, the value of bitcoin is depended the value that a person would be willing to pay.

The incarnation of cryptocurrencies led to a revolution in the online payments sector; this also led the way for new cryptocurrencies to use blockchain system and others derived from it to power digital, decentralized cryptocurrencies (Glaser & Bezzenberger, 2015). Today there are over 2,000 cryptocurrencies in existence, while bitcoin holds roughly 50% of the market share (CoinLore, 2019), many new ones form every day and quickly fail, however, there are some are fake ones looking cheat people of their money with a promising launch scheme. Some of the common ones are listed below in terms of their market share:

· Bitcoin

· Ethereum

· Bitcoin cash

· Litecoin

· Ripple (CoinMarketCap, 2019).

Traditionally we have relied on third parties for processing financial transactions which tend to work pretty slow due to institutional controls. They also charge a fee per transaction. Its image has become linked with “speculators, profit-driven entrepreneurs, market-fundamentalist…and technology experts” (Yelowitz and Wilson 2015).

Here is an interesting fact, the first ever use of a cryptocurrency was done on 22nd May in 2010 by a person named Laszlo Hanyecz, a software engineer from Florida, who agreed to pay for two large pizzas with BTC 10,000. (Yermack, 2013). Back in 2010 the value of a single bitcoin was less than $0.01. At the peak of bitcoin price in 2018 that would have cost $197.8 million. It is fair to say that bitcoin has gained quite an attention in recent years along with other cryptocurrencies. However due to its increasing price people have looked at them as more of an investment rather than a payment option.

2.2 How cryptocurerncies work

Bitcoin and most of the other cryptocurrencies out there use a network protocol called Blockchain. Blockchain can be understood as a mechanism where a distributed network of computer nodes, on regular intervals, cross-check a set of new transactions (Swan, 2015). More simply put blockchain consists of blocks of data which are linked together like a chain. The entire thing forms the DLT (distributed ledger technology). For example, in Bitcoin each block is limited to a data size of one megabyte however there are no limits on the volume transactions that can be added to a block unless it reaches the one MB file size. (BitcoinWiki, 2016). The Blockchain “represents all verified and valid transactions between users of the network” (Glaser, et al., 2014).

Every single Bitcoin has its own unique address with both the private and public keys. These keys are very important, the public keys can only be retrieved from the private ones. A transaction is only given a go sign when the private key corresponds with a public key. This allows the users to use blockchain to prove ownership of a bitcoin without the need for a third party for verification. The maximum volume of bitcoins that can exist is limited to 21 million, coded within its software and the estimated year for the last bitcoin mined is 2140. Protecting that private key is very important as it is unique, if it gets lost or stolen it cannot be recovered. It is estimated that the value of lost Bitcoins is US$ 950 million (Berke, 2017).

It is suitable to look at blockchain as a database of transactions that get built gradually by participants who are running the same software, guided by the inbuilt rules of the software itself. This process continues as so long the software is being run by the participants. Because of these participants, who are placed all over the world the system can keep running even if one individual person pulls out from the system. Meaning that an individual participant cannot cause disruption or modifications to the block, as all participants have a copy of the up to date block and can verify the data with the network at all times. The information inside the blockchain is available for the public to see and is shared amongst other participants. As a result, duplicating transactions or counterfeiting are next to impossible. This solidifies trust and security in the system. Blockchain in itself is a revolutionary technology whose source code can be improved and modified to benefit the application into consideration. This opens the possibility for blockchain to store all sorts of data for example, legal contracts, shares and bonds, and ownership titles of assets (Lee 2015), it can also record voting outcomes (Noizat 2015). All such advancements have given rise to block chain 2.0 developments, which is simply the application of the technology to record items which are not currency related (Swan 2015). Different coins can use different complex mechanisms and have different features, and some agree that these features aren’t yet fully discovered (Phillip, Chan, & Peiris, 2018).

Investors in cryptocurrencies can be categorized into two, the miners and traders. The miners are those who pool together the resources to carry out mining (Wang & Liu, 2015), and the traders who buy and sell cryptocurrencies through trading platforms like Bitfinex and Coinigy. When it comes to digital security many cryptocurrencies including bitcoin are designed to use SHA 256 Hash algorithm. It’s full forms is Secured Hash Algorithm 256-bit, which was designed by the NSA, this is a secure algorithm can be used to authenticate the integrity of data. Cryptographic hash functions are digitally run mathematical operations. When miners are mining for cryptocurrencies, they basically enter a completion of whose block gets added to the chain next. They all have to guess the answer to a mathematical question and guess because it can be solved logically. Because of this large computing power is required to guess the right answer first. As more and more miners participate the answer to the question gets harder to guess. This system of working is known as proof of work. The rate at which these calculations to find the answer can be simply put as the hash rate. It is possible for anyone to use this function to generate an output when given an input, but it is impossible to find out from the hash generated, what the input data was. This makes it very secure to be used in cryptocurrencies mining. An important thing to remember is the higher the hash rate the more immune the cryptocurrency would be to alterations and fraud.

Below is a picture showing the hash rate for bitcoin:

Figure 2. Hash rate for bitcoin. Source: (blockchain.com,2019)

Currently the hash rate for bitcoin stands at about 47 million tera-hashes per second. This is an incredibly large amount of computing power from across the globe to keep the network secure. Although it has decreased from mid 2018 since the crash indicating that some miners have stopped mining or the new ones that hopped on the train have dropped out.

This decentralization of bitcoin and other cryptocurrencies is built upon Satoshi’s idea of merging proof of work (PoW) ideas with other techniques, the hash of a block is linked with that of the previous one (Sovbetov, 2018). Thus, an attacker wanting to counterfeit or modify data within the bitcoin mining network would have to match that hash rate or have a higher rate. If an attacker otherwise tries to generate an invalid block, it will get refused by the other miners as the hash of that invalid block will need to match the last one and that of the previous one and so on until the very first block which was generated by Satoshi himself (Sovbetov, 2018).

However, cryptocurrency mining under PoW protocol is tedious and expensive requiring application specific Integrated circuits (ASIC), these machines are built for the very purpose cryptocurrency mining. Instead, these days most upcoming cryptocurrencies use proof-of-stake (PoS) procedure which is more eco-friendly requiring less computing power and thus less energy, it is also cheaper to operate under than PoS.

Here are how the transactions in the bitcoin and some altcoins work:

1. A public address is given to each person who has a wallet.

2. People can control that public key with a private one similar to an ATM pin.

3. They then Identify themselves on the bitcoin network and request for transfer of the cryptocurrency from their public address to someone else’s.

4. The miners can then verify this transaction and add it to the blockchain. The concerning parties can then view the transaction as complete using their public address (Scott, 2016).

Decentralized cryptocurrencies have the potential to change the existing retail system drastically and it is important to understand factors that influence their adoption. Acceptance of digital currencies as a supplementary payment method could be a marketing tool that makes firms stand out (Roussou and Stiakakis, 2016). The adoption of cryptocurrency as a payment option is rapidly increasing, with firms such as Microsoft, eBay, Dell, and Paypal, now accepting Bitcoin payments (Ussel, 2015). Cryptocurrency payments are anonymous, it does not overtly identify the payer, or the payee involved in a transaction, transactions are also irreversible.

Today bitcoin faces many competitors with different attributes to gain competitive advantage. Nevertheless, the importance of cryptocurrencies is increasing day by day. There have been various cryptocurrencies unique in their own way, such as Freicoin, this was a way to puposley include an inflation within the system inorder to stop the trend of people hoarding on their currencies and not suing them. Some have even built their own cryptocurrencies based on their prefrences and culture, Dogecoin for example which was built out of fun from an internet meme which today sits at $241 million in market capitalization. Regardless of their philosophies and culture. They have, in the general sense have become related to liberal thought.

The understanding of the workings of cryptocurrencies is important for people to be confident enough to use them. Although this paper only covers the workings of bitcoin and a few other altcoins as covering all of them is out of the scope of this paper. As mentioned earlier there are more than 2,000 cryptocurrencies today and some are unique in how they operate. This brief coverage should give the readers an understanding of most of them work.

2.2 Commodity-Backed cryptocurrencies

Due to the volatile nature of cryptocurrencies recently a lot of commodity-backed cryptocurrencies have surfaced. They are unique in some ways and promise to provide a more stable price and value. Commodity-backed cryptocurrencies have very little academic research done on them. It seems commodity backed cryptocurrencies can be backed by any tangible, existing commodities. The idea is that some physical thing is tied to the value of the coin. The first commodity backed cryptocurrency was ZrCoin which was backed by Zirconium Dioxide used an industrial material launched in 2017, the value of which is $1.95 today. A similar recent example is of a Swiss-based company Tiberius Group AG has launched Tiberius Coin (TCX) which backed by not one but seven different metals. These are all ‘technology metals’ which is a mix of copper, aluminum, nickel, cobalt, tin, gold and platinum, which are used in the manufacturing of technology. This coin is also regulated by Swiss law rather than some unregulated ICO. There is an endless list of commodities backed cryptocurrencies and more are upcoming every month.

Recently the Venezuelan government launched their own commodity backed cryptocurrency called El Petro which would supplement the current failing currency (Chohan,2018). This is backed entirely by its oil reserves. And because it is backed by oil, even if the value were to fall to zero it could be traded in for a barrel of oil. This way the risk for the investor is not greater than their initial investment.

Garrick Hileman (2015) from LSE has suggested ranking countries like Zimbabwe, Venezuela, Argentina as the countries who seem like the main candidates to use Bitcoin in the future. In Argentina and Venezuela, the main reason could be inflation of their national currency and use in illegal markets. Hileman argues that within such a scenario the anonymity offered by cryptocurrencies can help criminals in engaging with illegal activates.

2.2.1 Cryptocurrencies based on Sharia law

(Singhal A. and Rafiuddin A, 2014) have studied the role of bitcoin in the economy with special emphasis in Dubai. They study the compliance of bitcoin with regards to Islamic banking to figure out whether or not it is compliant with sharia law. They say bitcoin does follow the definition of money according to Islamic laws, i.e. it is abundant and available freely, it is durable and does not spoil, and it acts as a medium of exchange. They also suggest that the UAE government could allow the use of bitcoins through regulation to encourage a transaction less and tax less usage. Although the Islamic laws prevent certain activities which are illegal in the Islamic law domain such as gambling that bitcoin and other cryptocurrencies could be used for. There needs to be a sophisticated way to identify and stop the use of cryptocurrencies against such things if the UAE were to adopt it.

A study by (Evans, 2019) analyzes the relationship between cryptocurrencies running on blockchain management system (BMS) and Islamic Banking and Finance (IBF). They find that BMS can conform with the prevention of riba (interest or usury) and incorporate the philosophies of maslaha (public interest), and mutual risk-sharing. He concludes by saying that that Bitcoin or a similar cryptocurrency might be a more appropriate medium of exchange for Islamic Banking and Finance than interest-backed fiat currency (Evans, 2019).

In 2018 OneGram coin or OGC was launched in Dubai. This is a true sharia complaint cryptocurrency which has also won the best Islamic cryptocurrencies award by The Islamic Retail Banking Awards (IRBA) in Dubai. What is unique about this is that each OGC is backed by a minimum of one gram of gold, 1 OGC = market price of 1 gram of gold, this provides it a stable floor price. What is strikingly different about the OGC is that there are transaction fees incurred as they happen. The transaction fee is then 70% invested to increase gold reserves and this makes the currency stronger with every transaction (Onegram.org, 2019). OGC also incorporates the PoS method rather than the PoW. Like Bitcoin OGC also has a limited supply, but at 12.4 million OGCs, but it not reliant on bitcoin to assess its value.

2.3 More insights into current research

Although the literature on cryptocurrencies is scarce, it is growing and there have been a few studies on various aspects like volatility and improvements and suggestions form an IT standpoint. There have been studies based on awareness and knowledge of cryptocurrencies but from country-specific perspectives. A few studies have been done postulating theories with the investor decision-making process in cryptocurrencies investments, like (Yilmaz and Hazar, 2018). They examined five important attributes profitability, convenience, anonymity, security and bookkeeping which are vital attributes that affect an investors decision-making process using conjoint analysis. They provide a matrix of what investors put attention to while investing in cryptocurrencies based on the attributes mentioned above.

The market for cryptocurrencies has shown tremendous growth, even after the crash of 2018 it seems to be now somewhat stable. The total market valuation of cryptocurrencies stands at $141 billion (CoinMarketCap, 2019). This marks a vital importance for the financial markets.

Despite the recent popularity investors seemed to not have adequately understood theoretical foundations of cryptocurrencies (Chohan, 2017). There are a couple of academic studies on the same as (D’Alfonso et al.,2016) and (Lee et al.,2015), who suggest that due to the lack of comprehensive understanding investors may shy away from making such investments. However, investments can only increase in the field if common awareness interest and understating among people increases, which is also the focus of this research.

A study by (Folkinshteyn D.,2015) looks into the motives for people from undeveloped or developing countries to be using cryptocurrencies. These include:

• Using them as a means to facilitate low-cost remittances internationally at no cost.

• Ease of use, just by downloading a wallet app rather than going through a lengthy procedure from financial institutions.

• The technology that cryptocurrencies underpin, offering the basis for a richer set of financial services (Folkinshteyn D.,2015)

In the study conducted by (Bruijl, 2017), it was observed that cryptocurrencies are still limited to highly educated people. A paper by (Schuh and Shy, 2016) also have similar findings in the US; consumers are still less aware of bitcoins. Males are more aware than females about cryptocurrencies. High income and education individuals also have more awareness relating to cryptocurrencies. Studies settle that the new generations are more advanced into the Internet and communications technologies related things (Arora & Rahul,2017).

Another research conducted on Greek populace by (Tsanidis et al.,2015) showed that males with a graduate degree are more aware of the concept. Most of the participants in the research came to know about bitcoin in the last two years. The study was concluded stating the success of Bitcoins was not clear and there is still a lack of awareness in Greek populace about Bitcoins. A study by (Alaeddin & Altounjy, 2018) found that in Malaysian students there was a significant impact of awareness and trust that generated an intention to use cryptocurrencies. A few people actually use cryptocurrencies; this can be credited to it not being acknowledged widely due to its fluctuating price. A few countries have hence chosen to characterize them as a digital asset rather than currencies. Another study by (Shahzad et al., 2018) in central land China proposes that awareness and trust play a significant role in determining the purpose to use Bitcoin.

Studies have been conducted studying the factors that can influence the price of cryptocurrencies, mostly on Bitcoin. A research conducted by (Sovbetov, 2018) examined the factors that affected the price of one of the most widely used cryptocurrencies today like Bitcoin, Litecoin, Monero, Ethereum and Dash They also discuss that block halving could play a role in the increased price of bitcoins. This first happened on 28th November 2012, where the block rewards were reduced from 50 bitcoins per block to 25. Following this, the prices increased to $260 per bitcoin in April next year and $1,163 per bitcoin by the end of 2013 (Sovbetov, 2018). However, it is still uncertain if block halving plays a significant role in increased prices in bitcoins in these circumstances.

Studies (Kristoufek, 2013 and Buchholz et al., 2012) have attempted to establish the factors influencing the value of bitcoins. They find that price is mainly influenced by supply and demand of Bitcoin, and its fascination that investors have and international financial and macroeconomic changes. On the contrary, Ciaian et al. (2014) have contrasting views that the macro-financial advances are influencing the price of bitcoin.

News related to cryptocurrency regulations also seem to affect the prices of them, a study by (Bartos, 2015) find that negative news has a higher impact on the price of bitcoin than positive news.

The following figure from (Sovbetov, 2018) show the factors they determined to affect the price of bitcoins:

Fig. 3 Factors affecting cryptocurrencies price, from (sovebetov,2018)

Their findings related to pricing were as follows:

Firstly, factors related to the markets such as market beta, no. of transactions, and price fluctuations seem to be the main elements for all five currencies in the study, in short run as well as the long-run. Secondly, the level of attractiveness also matters concerning determining their price. However, this seems to be only in the long-run. Which indicates that the attractiveness of a cryptocurrency has time factor tied to it. Lastly, the SP500 index did not seem to have an impact on Bitcoin in the long run.

Studies have also been performed in the volatility of cryptocurrencies. (Nashirah and Sofian, 2017) carry out such research on bitcoin in specific, in their paper ‘High Volatility Detection Method Using Statistical Process Control for Cryptocurrency Exchange Rate: A Case Study of Bitcoin’, it calculates the volatility of Bitcoin from January 2017 to October 2017 based on daily closing prices of the asset.

Their paper labels volatility as “a statistical measure of dispersion of returns for investors.” They use Shapiro Wilk statistical measure to evaluate volatility and use graphical illustrations based on the box-whisker plot, which is an excellent mechanism to identify outliers.

In their study, the plotting revealed 18 outliers exchange rate information which implies high volatility for bitcoin. They also reported a further 515.7% increase in volatility when comparing the rate with the beginning and end of the test period. They conclude by classifying Bitcoin as a high-risk investment which could justify as to why its seen more as a speculative instrument. The importance of studying volatility of Bitcoin is to predict the future price of the asset, which is beneficial to investors to bet on its price. (Kongslip and Mateus, 2017). Thus, volatility could also be added to the list of reasons why it’s not widely accepted as a payment method, “its high volatility, a result of speculative activities, is hindering its general acceptance as a means of payments for online commerce” (Popper, 2013). The volatility creates a loop scenario: if further people get involved, the coin values will stabilize due to a larger the user base, one user would thus have fewer impacts on the influence price.

The figure below by (Kiran and Stannett, 2014) categorize risk associated in different categories and allocate a level of risk to each of them:

Fig.4 categories of risk, (Kiran and Stannett, 2014).

In a paper by (Chuen et al., 2017), they do an insightful analysis a select number of cryptocurrencies from the viewpoint of an investor. They calculate the rewards and risks based on a cryptocurrency index ‘CRIX’ which they had formed. The study was conducted to give light on the debate of classifying cryptocurrencies either as an asset or an investment. Interestingly they find that there was negligible amount of relation between traditional investment assets and cryptocurrencies. Using sentiment analysis, the results came out that the there was a return of 12.39 % annual returns. They also conducted a Sharpe ratio test of which the results were a figure of 8.21which indicates that is a good opportunity for investors. The below figure from their paper shows that their CRIX index outperformed traditions indices although there are very high risks associated with it.

Fig 5. Factors affecting cryptocurrencies price, from (Chuen et al., 2017).

In a paper by (Bartos, 2015), he studied the effect of new announcements regarding cryptocurrencies on the value of bitcoins to test if it reflects the EMH. Efficient markets refer to markets where the prices on the market reveal all publicly available information and react to that information quickly which changes the price accordingly. This means no investor can outperform the market consistently without insider information, other than luck. Efficient market hypothesis and behavioral finance contradict each other in terms of investor rationality. According EMH investors decide rationally, but according to behavioral finance investors could be irrational. There are market anomalies that EMH can’t explain the movements of.

The is presence of anomalies in the real-world markets like the January effect, the merger and acquisition effect etc. Behavioral finance is a new topic and being researched greatly in the recent years. The empirical analysis by (Bartos, 2015) verify that of cryptocurrencies react on new publicly available news, especially bitcoin and hence follows the EMH. Specifically, it was found that BTC prices were higher during positive events and negative while there were no innovations. This analysis established the importance of events on prices of cryptocurrencies (Bartos, 2015). (El Bahrawy and Alessandretti, 2017) observe behavior of the whole market (which was 1469 cryptocurrencies at that time) 2013 & 2017. They find that even though new cryptocurrencies come and go everyday their market capital is still rising rapidly and most have maintained stable prices.

There are two theories Innovation Diffusion Theory and Technology Acceptance Model that we take a look at next, which could be linked to studying and understanding cryptocurrencies better.

2.3.1 Innovation Diffusion Theory

Innovation diffusion theory is a theory which attempts to describe the rate at which new technologies and ideas spread along with reasoning for why it would spread. Innovation diffusion theory has been used in studies like (Bohr and Bashir,2014) and (Chang et al.,2016) where a positive influence of awareness towards usage of technology was observed.

An interesting study by (Wonglimpiyarat,2015) was conducted to find the chances of bitcoin to replace our cash-based society in 2015, the study looked into understanding the technology change using the technology S curve. The results indicated that there were parallel S-curve trajectories in innovations of electronic money which signified a direction towards a lower level of cash-based society by (Wonglimpiyarat,2015). Their results hence supported the diffusion of bitcoin and other cryptocurrencies. Moreover, if the diffusion were to happen on a large scale, it could even affect the operations of the monetary system (Stevens, 2017). Economies and bankers would pay key attention to them.

2.3.2 Technology acceptance model

The TAM is similar to innovation diffusion theory in the sense that these models test how readily users accept and apply new technologies. Technology Acceptance Model (TAM) was developed by Davis (1989) and is deployed in many studies relating to technologies adoption theories. In the TAM model, there are two factors, perceived usefulness (PU) and the second being perceived ease of use (PEOU) which together determine the intention to adopt new technology. According to the model the better the perceived usefulness and perceived ease of use of new technology, the more positive attitude people have on the technology, which motivates them to adopt and use it. Venkatesh, Morris, Davis, and Davis (2003) later introduced the Unified Theory of Acceptance and Use of Technology with additional factors (Jonker, n.d.). Technology acceptance model has been adopted in a lot of studies like Chin, W. (2010), Chuang, L. (2016) and Davis, F. D. (1985). Awareness is important in the adoption of innovative technology as it provides information about applications of such innovative ideas. (Aloudat A. et al., 2014),

There have been a few studies on the practicality of acceptance of cryptocurrencies as a payment method. The reason why its acceptance has persisted to be limited is that most retailers feel it is limited or no added value of such payments in contrast to other payment methods (Jonker, n.d.). Jonker conducted a study amongst 768 retailers in the Netherlands based on the TAM. A crucial factor limiting crypto adoption by retailers was found to be low consumer demand. He suggested that further research is needed to gain more insight into the factors influencing adoption of cryptocurrencies and the barriers consumers encounter. My research is thus focusing on awareness and also to seek some factors through the participants’ perception.

.

2.3.3 Crowdfunding and ICOs

We have seen that the use of cryptocurrencies can help address the limitations present in many online payment processing systems today. Its advantages over current payment systems like such as the speed of processing payments, no transaction fees, and its inherent privacy and anonymity make it an ideal alternative in Crowdfunding payments. Bitcoin and altcoins could solve the bottlenecks of high charges present in using traditional payment options. However, the actual scale and nature of its applications and outcomes will be depended upon how it addresses the challenges such as the regulatory environment (Gebert M., 2014).

An initial coin offering (ICO) is a mechanism through which new ventures raise capital by selling virtual coins to a crowd of investors (Fisch, 2019). ICOs are highly debated due to their controversial aspects. Because they are mostly unregulated, they enable startups to raise large amounts of capital, avoiding the compliance costs and intermediaries who would otherwise charge fees. Because of the high investment risk and potential for fraud, some jurisdictions, such as China and South Korea, have recently banned ICOs (Russell, 2017). In the United States, the Securities and Exchange Commission (SEC) has issued a warning to investors but also acknowledged the innovative potential of ICOs (SEC, 2017).

(Fisch et al., 2018) Explore investment motives in ICOs or blockchain coin sales. Based on primary data of 517 ICO investors, they find that investors are driven by:

• ideological motives,

• technological motives, and

• financial motives.

In further analysis, they differentiate investors according to the motives identified. One distinguishing feature noted of ICOs in the study was that investors partially follow ideological motives when investing in ICOs. This notion can help differentiate against other forms of raising capital like ventures. There is sync with crowdfunding with both in terms of delivering new means of financing and as new investment opportunities (Fisch et al., 2018).

ICOs can be modified to work in different ways; they do not have to mean a loss of ownership of the company and can be used just as an alternate means of raising finance. Through 2015-2016 NEO earned $4.5 million through offerings. It went from 0.03 cents a token to $50 each, earning investors a staggering 150,000% return (Investopedia, 2019).

2.4 Links to illegal activities and cause for regulation

Governments are now starting to recognize the potential of the cryptocurrencies and are issuing more and more regulations regarding them, some have even gone to the extent of banning while some still trying to classify it as an asset or a currency. These can be seen as either to protect against fraud or illegal cases. There is still discussion happening on various areas regarding cryptocurrencies such as how to tax them, how to account for cryptocurrencies and how to form regulations for them.

Bitcoin has been negatively associated with use in the illegal dark web commerce sites (Barratt, 2012; Trautman, 2014). Cryptocurrencies also face the problem of money laundering and dealing with illegal substances of various kinds (Brezo & Bringas, 2012). Silk Road was a popular darknet website that allowed people to buy drugs online and it accepted only bitcoins as payment. The website has now been shut down by the FBI as of 2013. However there still many websites on the darknet which conduct the sale of illegal services and activities all accepting payments in cryptocurrencies. This is due to the anonymity that cryptocurrencies offer. The websites are accessed using the Tor or Onion browser which makes them more anonymous online and harder to track down and they present new challenges to the governements.

Brown (2016) rationalized that the go to currency for cybercriminals was bitcoin. Its distinguishing characteristics of decentralization and unrecognizability were the factor that gained the interest of criminals, and yet some see bitcoin as posing very minimal levels of money laundering . A paper by (Stokes, 2012) examines that if criminals were to use BTCs for money laundering systems, then it could be easily identified through the price rate fluctuations as the market remains volatile. Due to the price volatility, criminals might not want to use bitcoins or other cryptocurrencies as a gateway to money laundering (Stokes, 2012). However even today Bitcoin constitutes a considerable hazard in terms of criminal organizations and law enforcement officers (Dallyn, 2017). Recently it was reported that the U.S federal court ruled out cryptocurrencies as commodities like gold or oil after a $6 million fraudulent case of an illegitimate cryptocurrency called My Big Coin (MBC) (Canellis, 2019).

Cybercriminals could also be using the computing power from your devices for cryptocurrency mining operations. Recently such an attack as reported at large scale when unpatched versions of Windows 2003 Web servers were infected with modified mining software. The loss due to this was estimated to be more than US$ 63,000 (Seals, 2017).

The figure below from (Sovbetov, 2018) shows a list of countries and their status towards cryptocurrencies from:

Fig.6 status of cryptocurrencies of different countries, (Sovbetov,2018).

2.5 Chapter summary

Current literature is still growing on the topic, as more and more cryptocurrencies and ideologies appear new studies will have to be conducted to test their viability and suggest improvements until the perfect cryptocurrency is made. There are many gaps still existent in the literature like the study of awareness and acceptance on a global scale, making networks safer, researching about the different types of modified DLTs, tax and regulatory impacts on consumer adoption, etc. Most of the research currently is done only on bitcoin; other currencies are left out the equation, including them can help gain fruitful and expansive results. New business models could be developed by gaining a better understanding of the approach and models used by entrepreneurs

Most of the research on cryptocurrencies are quantitative, and more research needs to be done in the qualitative aspects such as how culture in countries could affect the idea of cryptocurrencies, etc. There also need to be a trend in order to make cryptocurrencies more understandable to the public to gain more user base. Full understating amongst people of non-IT backgrounds has still not been reached.

Cryptocurrencies are still viewed as an unused, complex technology that is limited to the knowledge of experts. Two things would be needed for the broader adoption of cryptocurrencies, they must become more comfortable to use as a currency, and it has to disconnect from the negative relations to solidify trust amongst the public. Eventually, its wider adoption will boil down to the level of trust that consumers hold in it as a reliable medium of exchange. Hackers and criminals damage this trust. Smart regulation must be put in place to protect users and build trust, but this, however, goes against the concept of decentralization.

Chapter Three: Research Methodology

3.0 Introduction

In the last chapter current research and studies related to bitcoin were discussed. It was observed that more qualitative research focusing cryptocurrencies was needed to gain a better understanding of the subject, for example current awareness levels in countries and consumer perception towards cryptocurrencies. This paper studies the level of awareness and understanding of people in the U.A.E. This chapter thus designs a research methodology around gathering and interpreting this data. This chapter is constructed as follows: Research strategy, data collection, data analysis framework, limitations and conclusions.

3.1 Research strategy

The methodology if this research consists of gathering and interpreting primary data to build upon the existing literature and then also discussing the results of the analysis. This is largely is qualitative approach study. To understand how this was a suitable method for the study let’s take a look at the differences between a qualitative and a quantitative study.

Qualitative

Quantitative

Principal basis of reasoning

Induction based, generating theories and hypothesis.

Deduction based, verifying theories through testing.

Ontological Approaches

Constructionism

Objectivism

Epistemological orientation

Positivism

Interpretivism

Research type

Exploratory

Conclusive

Table 1. Differences between qualitative and quantitative research methods. (Bryman and Bell, 2011).

3.1.1Reasoning: Inductive vs Deductive

With inductive reasoning, a researcher builds theories through primary findings and observations. (Bryman and Bell, 2011). With deductive reasoning however it the complete opposite, a researcher tests the existing theories and knowledge through hypothesis building and testing.

This paper attempts to uncover the level of understanding of cryptocurrencies between people through collecting primary data. This study therefore reflects an inductive approach when no theory is tested but knowledge is built upon.

3.1.2 Epistemological orientation Interpretivism vs Positivism.

Both epistemology and Ontology are important philosophies when it comes to knowledge. Epistemology is the study of theory of knowledge and the approach adopted for making advancements in knowledge, it is also concerned with the rationality of belief (Saunders et al., 2008). Interpretivism and positivism have different approached and views. Positivists believe that only statements that can be verified through observtion are to be considered important (Ryan et al., 2002). On the contrary interpretivists believe that it is importnant for studies should factor human behaviours (Bryman and Bell, 2011).

Thus the approach of this study is Interpretivism as the aim of the research is to study the human behaviour towards cryptocurrencies. The data collected through consucting this research will help form theories about cryptocurrencies usage and awareness in the United Arab Emirates.

3.1.3 Ontological Approaches: Constructionism vs Objectivism

Ontology is the study of being, i.e. the views of a person that they are surrounded with (Saunders et al., 2008). Constrctionism is an aspect where knowledge is continously being built where as objectivism “portrays the position that social entities exist in reality external to social actors concerned with their existence” (Saunders & Thornhill, 2012). This paper takes on a qualitative approach and thus follows the constructivism paradigm.

3.2 Literature Research

To start off with the research various sources of information’s were used to gather an understanding of Cryptocurrencies and relation and impact it has on accountancy and finance. This was done through reading articles on websites. However, the main literature research was done with a mix of academic sources and creditworthy websites, as the literature on the topic is still limited. The journals were found using the university’s ‘discovery’ portal and using google scholar.

After gaining a thorough understanding the gaps in the literature were more visible which are many at this point of time due to the smaller number of studies performed on cryptocurrencies. In addition to providing a knowledge base for this research the literature review also provides me an understating of the research methodologies used in the studies and their drawbacks and advantages. The methods most widely used are also the methods adopted in this research which is discussed more in depth in the next section.

3.3 Data collection

Since this study is based on cryptocurrencies, which work entirely on the internet, most data in this paper regarding their figures and status is collected from creditworthy cryptocurrencies tracking websites such as CoinLore, Coinbase, Coin Desk, etc. Although the study is based on U.A.E resident participants, the data on cryptocurrencies included in the literature review is global, i.e. since it is on the internet, there are no country barriers in those terms. All of the data collected on cryptocurrencies in this study was publicly available.

A questionnaire was used to get responses from people of different backgrounds to get heterogenous responses from participants. This study mostly works with qualitative data in order to develop a further understanding of the perception and awareness of people to cryptocurrencies. A Survey as explained by (Krishnaiah and Rao, 1988) is very inexpensive and efficient while being the easiest way to collect new information. Previous studies like (Duma et al. 2018) conducted a study on similar work also applied the use of a questionnaire to collect information. There were no minor age or special groups included in the research. All participants were informed before filling in the questionnaire that their confidentiality will be maintained. As argued by (Shaughnessy, Zechmeister and Zechmeister, 2015) any failure to conducting research within ethical boundaries can undermine the research and reduces public respect on reading academic articles.

The data was collected from the use of an online platform called Qualtrics, provided by university via login in from university email. This was a very convenient method of generating a questionnaire online and also made it easier for the participants in filling it up. The questionnaire helped gather a significant amount of responses in a short period of time. The questionnaire included 15 questions of mixed qualitative and some quantitative aspects, they were designed to be easy to fill, typically, the longer the questionnaire with complicated questions are the fewer responses are received (Galesic and Bosnjak,2009). The questionnaire questioned the intent of participants to use cryptocurrencies, their attitude of risk towards and their stance towards the regulation of cryptocurrencies. It also included an open-ended question, in the end, to get the views and opinions of the participants regarding cryptocurrency awareness and use in the United Arab Emirates.

A total of 91 responses were recorded for this study. The survey link was distributed using social media platforms as it is the most viable method to get responses due to its dynamic nature quickly. The survey was filled only with people having previously heard about bitcoin or cryptocurrencies, and thus, a random sampling technique without replacement was applied along with the use of snowballing which allowed for more significant and easier responses. There was also no data filtration needed as all responses were received in full without any missing data. A blank questionnaire form is present in appendix A.

The questionnaire design of this research has also been applied in previous research by (Duma et al. 2018) in order to underline patterns emerging from the study whether the working class is more motivated towards adopting innovation in technology than the new or younger generations. This paper will also look into if gender has any role to play when it comes to awareness and understanding regarding cryptocurrencies.

3.5 Data analysis framework

The data gathered in this study through the questionnaire is interpreted through descriptive statistics. Due to the small sample size of 91 using sophisticated analysis techniques for qualitative methodology like thematic analysis or content analysis could not be applied as the questionnaire gathers a mix of quantitative data as well and is not entirely qualitative, there are also no interviews conducted due to it timely nature, to justify the use of thematic analysis or content analysis, which require coding of certain important repetitive words from respondents. Software like IBM SPSS would also not have been viable enough to reach a valid conclusion considering the sample size.

As this study follows a constructivist approach and is based on inductive principal orientation, there are no test of existing theories using formulas and models but rather the explanation and discussions based on the findings of the primary data. Thus, this is an exploratory study through questionnaire method based on random sampling technique. However, due to the small size of the questionnaire analysis, it is more appropriate to avoid much calculations with numbers, instead the data was used thoughtfully in a narrative format to allow the reader to get an idea of the responses received. Interpretations are achieved by the use of descriptive statistics to explain the reasons for the results of each of the questions asked in the survey along with a description and implications. From here patterns and ideas can be drawn.

3.6 Limitations

This is a study based on a web-based form of currency, the internet was the essential means of data collection. The internet is a great source for information without a doubt and provides easier access to information, access to a larger audience for data collection, low costs of information and saves time (Benfield and Szlemko, 2006). Although there are challenges related to data privacy and custody (Askitas and Zimmermann, 2015). However as stated earlier all information was publicly available and participants data was kept anonymous. As discussed by (Smith,2015) questionnaire results can be biased and will not always be correct. Computer hardware or software failure could cause harm to research progress; hence, multiple copies were kept of all data online as backup to resolve this issue. One main limitation of using data from internet or getting responses from questionnaire in general is that the sample may not be representative of the entire population (Zagheni and Weber, 2015). Another limitation to this study is the fact that its studies perceptions and awareness of people only in the United Arab Emirates. This is not helpful in giving a wholistic conclusion on the awareness and understanding cryptocurrencies on an international scale.

3.7 Conclusion

The intent of this chapter was to discuss the methodology adopted by this research which was best suitable for the study. Following the discussion on ontology and epistemology and qualitative approach was chosen. The means of data collection and sampling methods were also highlighted. The upcoming chapter presents the findings of the study and discusses on those findings. It will finally enable us to draw up conclusions based on the findings and which could help raise more awareness amongst people regarding cryptocurrencies. It will promote the idea and knowledge of cryptocurrencies while paving a way for more researchers or organizations to understand consumer perception and behavior on cryptocurrencies.

Chapter Four: Results and Analysis

4.1 Introduction

This chapter presents the findings of this research. Firstly, a summary statistic is presented which gives an overview of the 91 responses received from the questionnaires. Secondly, descriptive analysis is performed to show the results of each of the questions asked in the survey. Data is presented through the use of bars graphs and pie chats as they are very easy to understand. Each question is given a description and is discussed with the implications of the findings.

4.2 Descriptive analysis and discussion

This section will present the findings through the use of graphs and charts and discuss upon each question one by one.

Q1 – What is your gender?

Fig 7. Q1 – What is your gender?

Form the 91 responses received most of them were males at 67% with 61 males and 31 females taking part in the study, these figures could be something to pay attention to. The questionnaire was open to fill online through a link distributed on social media, but it looks like most females didn’t even participate in the survey. We could assume that there is gender bias present when it comes to understanding cryptocurrencies, which could be the reason why females were hesitant to participate. However, females not opting to participate in the survey cannot conclude on gender biases as other factors may have also caused this. Nonetheless this gives us a starting point to compare the differences between the responses received from both the genders.

Q2 – What age group do you belong to?

Fig 8. What age group do you belong to?

It is clear from the figure above that the young generation populace show more interest towards cryptocurrencies. The majority of the people who were willing to fill up the questionnaire were from the age of 18-25. This result also corresponds with that of (Arora & Rahul,2017) who show that the newer generations are more advanced and willing to adopt new technologies. It is interesting to note however, from the Fig.4 below, that there were no major differences between the genders when compared to the age groups. The young generations showed equal participation, it was the age group of 45-55+ where the lack of female participants was seen. Although the reasons for this are quite unclear. This information could be useful to companies in the UAE launching ICOs, or for companies to target the right demographic for efficient allocation of resources.

Fig 9. Age difference’s compared with gender

Q3 – When did you first hear about cryptocurrencies?

Fig. 10 First instance of knowing about cryptocurrencies.

This question was drafted to get an idea of when the participants had first heard about cryptocurrencies. The choices were divided into three crucial phases of cryptocurrencies, 2009-2012 being the early years when cryptocurrencies werent given much importance by people, only the experts, miners, crimnal organizations and a hadful of other aficianados would have known. The second phase from 2013-2016 was when they increasing in prices especially bitcoin and gaining a wider userbase. This is when even governments started to take notice. U.S passed laws for investors to pay tax on incomes from cryptocurrencies (forbes,2017), although later they could even pay them in bitocin (coindesk, 2018). The third phase is when cryptocurrencies were really booming, a lot of people hopped on to invest in them raising the prices because of them demand. Since there were no regulations this went out of control and the cryptocurrencies market evetually crahsed in 2018. It is still trying to recover eversince.

It is evident form the results that majority of the people (50%) have first only heard of cryptocurrencies during this third period. The awareness among people here is contributed to the growing bubble. This implies that previously there hadn’t been much marketing, use and awareness of cryptocurrencies. Most people who know about cryptocurrencies only came to know recently, which could mean that there is still possibility of less knowledge and understanding of cryptocurrencies today. These results are in parallel to a study conducted in Greece by (Tsanidis et al.,2015) who also reported that participants have acquired knowledge of existence of bitcoin in the last two years. He concludes that there was still a lack of understating amongst the Greeks regarding bitcoins and cryptocurrencies.

Q4 – Which ones do you think are the reasons for recent popularity in cryptocurrencies?

Fig 11. Participants view on popullarity of cryptocurrencies

Grouping the results of this question into the three phases discussed earlier, it is fair to say that majority of the people who came to know about cryptocurrencies came to know within the last two years, i.e. during the growth of the speculative bubble. Mainly this question intended to find the reasons that caused the participants to become aware of cryptocurrencies in the first place. Most have become aware during the third phase as discussed earlier. Although it seems from the responses received that most people place more emphasis that the bubble has made cryptocurrencies more widespread and placing less emphasis on the underlying technology and features. This could again imply that there is a lack of understanding of the operations of cryptocurrencies which is why features like peer to peer transaction at zero fee are given less importance. Another interesting point to note is that the group of people from the study who heard of cryptocurrencies in 2017-2019 who are 41% of the participants, have mainly voted for can’t say as an option indicating that they are even unaware of why cryptocurrencies are trending recently in the first place.

Q5 – From a cyber-security standpoint, on a scale of 1-5 how safe do you see cryptocurrencies as? (1 being least secure and 5 being highly secure)

Fig 12. Cryptocurrencies and cyber security

This question also intended to test the depth of understating of how cryptocurrencies work. The participants had to choose on a Likert scale from 1 to 5. The participants have mostly chosen 3, with the mean of the results coming to 2.8. The most popular answer was the one in the middle i.e. 3. Which on its own could indicate that this option was chosen as participants were unsure of what to pick. As discussed in the literature, cryptocurrencies are based on cryptography and hence are highly secure from getting attacked by hackers. It is even astounding to note that the number of responses for a 1 one the Likert scale and a 4 were the same at 18 responses. Naturally and rationally one understanding cryptocurrencies would expect for gradient within the response of this question going from 1 to 5 while increasing in responses on 5. However, this was not the case in this study. Thus, we can conclude based on this response that once again there is a lack of understanding or rather the awareness of cryptocurrencies from cyber security perspective.

Q6 – On a scale of 0-4+ how many cryptocurrencies do you own, or have you owned?

Fig 13. Ownership of cryptocurrencies.

With this question, I wanted to find out how many people have actually invested cryptocurrencies. It turns out 85% of the participants have never owned a cryptocurrency. This shows the level of investment, adoption or use of cryptocurrencies by people in the U.A.E. This number is significant, given that less people are motivated to use cryptocurrencies due to its fluctuating price. This could also be a result of the complex system of maintaining a wallet and holding cryptocurrencies which could shy away investors from making such investments. In addition, this could also be because of various other factors described in the literature review such as its association with illegal activities, lack of knowledge of the technology etc. In order to increase the use of them more trust has to be developed among the users to create an intention to use them. This also good news in a way that if people are educated about cryptocurrencies in the right way there is a huge market in the UAE for cryptocurrency related transactions and investments given the high net disposable income per capita that the UAE has.

Q7 – On a scale of 1-5 how likely do think the use of cryptocurrencies will lead to a decline in the use of fiat currency in the next 5 years’ time? (1 being least likely and 5 being extremely likely)

Fig 14. Cryptocurrencies vs fiat currencies.

This question seeks the view of the public regarding cryptocurrencies becoming mainstream and influencing the use of fiat currency. Most respondents have a negative stance on the likelihood of such an event. Results were greatly in the area of one (extremely unlikely) to three (neutral). This indicates that consumers are not likely to use cryptocurrencies as much as fiat in the next 5 years, we have already discussed the list of reasons why this might be in the literature review. But the implications of such a response basically concludes with saying that users are also not very much interested in using cryptos in the UAE or that they are unable to, which could lead to poor growth of cryptocurrencies in the region and continue the problems of lack of awareness in the region.

Q8 – What types of investments do you usually make?

Fig 15. Commodities usually invested in.

This question is was essential in understanding the ideologies of the participants behind investing. Bonds would indicate a risk averse investor, shares would indicate a risk taker, commodities would also indicate a risk taker, cryptocurrencies are also similar to commodities, this would give an idea about investor behavior, will investors who invest in commodities have a higher chance in investing in commodities? Is their approach to risk with cryptocurrencies the same as it is with commodities or what they currently invest in? 55% of the participants seem to invest in shares, while investors in commodities and bonds seems to be similar in size. To get a comparable answer, it has to be merged with Q9 of the questionnaire which is discussed next.

Q9 – On a scale of 1-5 how risky do see investments in cryptocurrency as with regards to its price fluctuations and volatility? (1 being extremely risky and 5 being extremely risk-less)

Fig 16. Riskiness of cryptocurrencies.

Starting off with the response to this specific question we can see that majority of the respondent view investments in cryptocurrencies as extremely risky or risky to a great extent. Which could be one of the main reasons for the low use of cryptocurrencies by the participants in the UAE. However, coming the data of this question from the previous one we can see the results in Fig 12 below:

Fig 17. Comparison of investor risk ideologies of traditional assets vs cryptocurrencies

The figure above is divided into 5 zones, taken from the Likert scale of one to five from question 9. It also simultaneously takes into consideration the investment choices from participants from questions 8. For example, the number three circle diagram shows the investment choices of people who picked a 3 on the Likert scale of one to five in question 9 similarly the number five circle shows investment choices of people who risk takers are, as they have selected option 5 which is the view that cryptocurrencies are extremely risk-less. It is interesting to note looking at the diagrams that participants who have chosen option four and five compromise largely of investors who usually invest in shares. The proportion of shares investors gradually decreases as the we head back to one or is rather higher in four and five. This indicates that investors who invest in shares and are risk takers have higher chances of investing in cryptocurrencies.

Q10 – On a scale of 1-5 how accepted do think cryptocurrencies are for transactions in the UAE? (1 being least acceptable to 5 being highly acceptable)

Fig 18. Acceptance level of cryptocurrencies in the UAE.

We can get an insightful view with the chart regarding how accepted cryptocurrencies are for payments and other transactions in the U.A.E. Majority of the respondents voted between one and three implying that there is very little to no wide acceptance of cryptocurrencies in the region for transactions. Increasing infrastructure in the region to adopt and use cryptocurrencies online and offline could boost the awareness and get more people to use cryptocurrencies as well. Currently this research shows that are less shops and websites that are willing to accept cryptocurrencies as payment methods. However, this not only the case with UAE but also most other countries, like Netherlands, as we saw earlier with (Jonker, n.d.) who studied 768 retailers, where there was low acceptance and motives to use cryptocurrencies. This was due to low consumer demand because of the barriers encountered by customers. It seems with the results that there is low consumer demand in the United Arab Emirates as well. The only viable ways to increase that would be awareness and acceptance.

Q11 – How likely on a scale of 1-5 are you to transact in cryptocurrencies because of their zero transaction costs? (1 being extremely unlikely and 5 being extremely likely)

Fig 19. Transaction rate of cryptocurrencies due to zero transaction costs.

We have discussed earlier that peer to peer transactions are an advantage that cryptocurrencies offer without the existence of a third party, this results in zero transaction costs and fees. Which already is an advantage over using traditional third-party systems. Surprisingly, the response from the participants were that a majority of them would not use cryptocurrencies even if there were no transactions cost incurred. This rule out the zero transactions costs as a main factor of cryptocurrencies acceptance, at least in the region. Rationally people would opt to use cryptocurrencies for this feature, but people aren’t always rational and that’s what behavioral finance and qualitative researchers’ study, the human emotion aspect towards things.

Q12 – In 5 years’, time what do you think will cryptocurrencies be worth?

Fig 20. Respondents view on future cryptocurrencies prices.

The answer to this question could also help in explaining the reasons why people aren’t up to take cryptocurrencies as mainstream. 35% of the respondents think that the prices of cryptocurrencies will stay volatile and hence could be cautioning and disconnecting themselves from the idea of getting into cryptocurrency trades. Another 29% of the people were unsure about the future of cryptocurrencies which would again also lead to a cautionary stance on cryptocurrencies. These issues could be resolved by regulation and ensuring trust to the users, however this would go against the concept of decentralization that cryptocurrencies are based on.

Q13 – On a scale of 1-5, what impact does the intangible aspect of cryptocurrencies affect your decisions to transact or invest in them? (1 being negatively impacted and 5 being positively impacted)

Fig 21. Effect of intangibles on investment decision.

This question attempts to seek whether the cryptocurrencies being intangible has any effect on the investment decisions. Most people seemed to have picked a neutral position, which indicates that the tangibility or intangibility of cryptocurrencies does not have either a positive or a negative influence in their investment decisions made. Although a considerable amount of respondents’ investment decisions seems to have been influenced due to its intangibility. It might matter to investors who usually invest in commodities, but since shares are intangible, and it will affect shares investors less.

Q14 – On a scale of 1-5 how much would you agree with the decision of the UAE government to regulate all offerings and transactions related to cryptocurrencies? (1 being strongly disagree and 5 being strongly agree)

Fig 22. View on regulation in the UAE.

We have seen that governments are now more actively looking for implementing rules regulations on cryptocurrencies. Although some think this against the foundations of cryptocurrencies, i.e. them being decentralized and not governed over by any authoritative state. The debate is still ongoing. This question gathers opinions on whether or not the UAE government should regulate ICOs and transactions related to cryptocurrencies. 35% of the people voted for a neutral stand on regulation of cryptocurrencies. While the next major scale was picked at five with 24% wanting regulations. This shows us that given the situations that there were to be regulation, most people wouldn’t reject the idea. Given that regulation can help crack down on illegal transactions and provide the users with safety and trust while using them. Moreover, this would also help boost the use of cryptocurrencies and, its awareness and understating.

The last question, Q15 was an open-ended question where participants could type out their opinion and thoughts regarding cryptocurrencies:

Q15 – Lastly, what are your opinions on the current state of awareness and use of cryptocurrencies, should people be using it? If yes can you suggest some ways in which you could see it become more mainstream.

This was a great way to get detailed insights into the perceptions of the respondents. Since I haven’t used any qualitative data specific methodology, there is no thematic or content analysis conducted as such. However, there are a key few words that the respondents answered the question with, which are:

“Ways to accept multiple cryptocurrencies”, “not exciting anymore”, “uncertainties with prices”, “”not understood by most people”, “need education on its functionalities”, “careful with cryptocurrencies”, “not aware of usage”, “more awareness to increase demand”, “leads to misuse and scams”, “refrain use till 100% sure and educated on technical workings”, “no control and regulation”, “not trustable for use or deals”, “awareness before use”, “works on speculation only”, “should become centralized”, “complex technology”, “enhance transparency”, “very volatile”.

The raw data of the responses received along with the metadata are submitted along with the dissertation in a USB drive.

4.6 Conclusion

The purpose of this chapter was to present the findings from the responses received from the participants. A questionnaire was used to get responses of 91 participants. We infer that the young generations are more willing to respond to new innovative technologies. We looked at the attitude of UAE based residents on different aspects related to cryptocurrencies. It was evident from the responses that there is a lack of awareness and understanding of cryptocurrencies among the participants. The conclusion on the entire study is provided in the next chapter.

Chapter Five: Conclusion

5.0 Introduction

This chapter provides the conclusion of the entire dissertation study. Firstly, the literature review provided a deeper understating of what cryptocurrencies are and how they work. This information helped us develop a questionnaire to gather information on the current level of consumer knowledge regarding cryptocurrencies in the UAE. We also decided that an inductive approach was needed to carry out the dissertation and a questionnaire was best suitable method for gathering information. Various aspects of information were gathered from the participants which helped in arriving at the goal of this dissertation which was to study the awareness of understanding of cryptocurrencies. It was found that majority of the population reported with a lack the knowledge and awareness on cryptocurrencies, they also have a negative stance on using cryptocurrencies due to lack of knowledge of using them, high volatility, no regulation to protect them and its complex nature. The participants also conveyed that more regulations need to come, and more awareness programs are needed to make using cryptocurrencies common and until there is a large user base and regulations the prices will keep fluctuating which will be a cause of hindrance for consumers using cryptocurrencies. A brief summary and future implications and recommendations are mentioned below.

5.1 Summary of findings

In the beginning we set out dissertations goals as follows:

· Objective 1 – To explore the workings, uses and various types of cryptocurrencies available in the market.
· Objective 2 – To identify the critically the benefits and flaws of cryptocurrencies over fiat currencies.
· Objective 3 – To understand the role of cryptocurrencies in the fields of investment and financing with an overview on international regulations about them.
· Objective 4 – To understand by interpreting the data collected the reasons for low level use of Cryptocurrencies.

These goals were all we achieved. We interpreted from the data various things, there is a gender gap between the knowledge of cryptocurrencies based on this study, however the bias can be wrong as the study doesn’t employ a significant number of respondents. Furthermore, one interesting finding was that investors who invest in shares are more likely to invest in cryptocurrencies than those who invest in commodities or bonds. Cryptocurrencies along with blockchain technology do have potential to revolutionize many industries. However, currently there are boundaries present in both regulations and understanding the concept. People need to get educated on the topic before taking huge leaps with cryptocurrencies. People don’t have the motives to be using cryptocurrencies right now, due to its complex nature, links with criminals, and price volatility. Many respondents were unsure about the future of cryptocurrencies due to such factors and hence refrain investing or buying them.

5.2 Implications

The results have implications on many stakeholders of this research. It can help entrepreneurs looking to raise finance through ICOs or just implement cryptocurrencies as a mode of payment, especially for businesses based in the UAE. It provides how people in UAE behave towards cryptocurrencies and why they do so. This can help them build a cryptocurrency that meets all the criteria to make the perfect cryptocurrency.

The impacts of this research paper will be vast. Firms, investors, auditors and even the state can find this paper useful. The knowledge gained in the literature review will also help spread the awareness as it can educate people on how cryptocurrencies work. This will act as a guide to people who are just learning about cryptocurrencies. It can also act as a base for further research done regarding cryptocurrencies in the UAE.

5.3 Limitation and further research direction

This study has some limitations and thus the results have to be interpreted with caution. First of all, the study sample size is relatively small at 91 respondents, the results would have been interpreted better with a larger sample size. Secondly the study the use of questionnaire may not be the best and accurate method in collecting meaningful data. The answers given by respondents can be biased or not correct. The study is also based on residents in the UAE only and is the results could be interpreted with limitation to the UAE only.

The results of this study foster several queries that create potential areas for further research. Perhaps a similar study involving a more distinct group of participants would produce a more representative set of results. Using the results from this paper future researchers can test the findings and conclusions arrived at. Future researchers can focus more on studying multiple cryptocurrencies and the culture that form one. Studies are also lacking on consumer behaviors towards cryptocurrencies. There are currently a lot of misunderstands and information asymmetry when it comes to cryptocurrencies. Research also needs to be done on building up more awareness of cryptocurrencies to build a stronger user base and increase the applications. More studies need to be performed looking at how cryptocurrencies could be brought mainstream either through more regulations or marketing.

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Appendix: A

1. What is your gender?

· Male Female

2. What age group do you belong to?

18-25 25-35 35-45 45-55+

3. When did you first hear about cryptocurrencies?

2009-2012 2013-2016 2017-2019

4. Which ones do you think are the reasons for recent popularity in cryptocurrencies?

Its speculative bubble.

Peer to Peer transactions with no fees.

Its use of blockchain technology

Can’t say

5. From a cybersecurity standpoint, on a scale of 0-5 how safe do you see cryptocurrencies as?

6. On a scale of 0-4 how many cryptocurrencies do you own, or have you owned?

7. On a scale of 1-5 how likely do think the use of cryptocurrencies will lead to a decline in the use of fiat currency in the next 5 years’ time?

8. What types of securities do you usually otherwise invest in?

Bonds

Shares

Commodities.

9. On a scale of 1-5 how accepted do think cryptocurrencies are for transactions in the UAE?

10. On a scale of 1-5 how risky do see investments in cryptocurrency as with regards to its price fluctuations and volatility?

11. How likely on a scale of 1-5 are you to transact in cryptocurrencies because of their zero transaction costs?

12. In 5 years’, time what do you think will cryptocurrencies be worth?

Will increase in price

Will decrease in price

Stay Volatile

cant say

13. On a scale of 1-5, what impact does the intangible aspect of cryptocurrencies affect your decisions to transact or invest in them?

14. On a scale of 1-5 how much would you agree with the decision of the UAE government to regulate all offerings and transactions related to cryptocurrencies?

15. What are your opinions on the current state of awareness and use of cryptocurrencies, should people be using it? If yes can you suggest some ways in which you could see it become more mainstream.

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