A study on the origin, current status, regulatory outlook, and valuation of cryptocurrency

Abstract

Cryptocurrencies are like fiat currency in terms of the basic use cases of store of value, medium of exchange and unit of accoun . However, cryptocurrencies differ to fiat currency in the fact that there are more use cases and innovations in cryptocurrencies, and the supply of cryptocurrencies is not controlled by the Central Bank. The fiat money also doesn't have any intrinsic value and has only Central Bank attributed value as a legal tender. However, the cryptocurrencies have its own intrinsic value which boils down to how effective is it's use case. Crypto assets are in the news ever since the first bitcoin was launched in 2008. Recently, Bitcoin had touched highs of over $50,000/coin and has garnered much interest worldwide. Major governments are discussing how to launch their digital cryptocurrencies. However, cryptocurrency remains a mysterious asset for many people. This report will help as a guide to improve understanding of the crypto assets. We briefly describe the beginning of crypto-assets with the launch ofbitcoin and explain the main problem that bitcoin would solve. Then we explain how blockchain, the underlying technology of crypto-assets, solves this problem. We then discuss the capabilities and unique use cases of crypto assets and the reason for the existence of over 6,000 crypto assets. The report then covers the valuation of crypto assets. Five models have been discussed: Total Addressable Market based on the use case, The Equation of Exchange, Cost of Production, Network Model, and Stock to flow model. The benefits and drawbacks of these models are discussed, and future research related to the same is indicated. Various countries have adopted different approaches to regulating cryptocurrencies. Some have taken a liberal approach while others have resorted to banning cryptocurrencies. There are some others that have taken a middle ground. These approaches are discussed, with examples of various countries under each category. We have then assimilated the information along with India's policy towards cryptocurrency regulation and recommended a way ahead for cryptocurrency regulation in the country.