Cryptocurrencies have become a popular investment in recent years, but the biggest momentum has come from COVID19. As the pandemic hits stock markets around the world, more investors are opting for digital assets. However, decentralized exchanges are  highly volatile, making them less reliable than investing in safe havens like gold.

Recent price movements demonstrate this. Bitcoin has risen nearly 300% over the past 12 months to $46,000 (AU$63,800), but has fallen from its April high of $65,000 (AU$83,000) in China. for a breakthrough. Cryptocurrency went down  and Tesla CEO Elon Musk abruptly canceled plans to accept Bitcoin as payment for electric vehicles. Despite this volatility, Bitcoin has demonstrated resilience over the past decade and continues to be supported as a store of value.

What is cryptocurrency?

Cryptocurrency is a digital token that can be exchanged for  value through a peer-to-peer network. Cryptocurrencies works using a decentralized digital ledger called a blockchain that maintains an immutable record of all transactions agreed to by network nodes.

The absence of a central authority to approve fiat transactions is one of the hallmarks of cryptocurrencies and  one of its most controversial features. There are over 9,500 existing cryptocurrencies traded on over 300 exchanges, according to Coinmarketcap.com.

Despite initial skepticism in the financial world, the global cryptocurrency market's market cap has grown to $1.99 trillion. It lags far behind gold ($15.27 trillion), but is comparable to silver ($1.98 trillion), making it an asset class worth considering from an investment perspective.

The most popular cryptocurrency among Australians is Bitcoin, according to the Independent Reserve Cryptocurrency Index (IRCI), an annual report that provides an overview of Australia's day-to-day attitudes towards cryptocurrencies. is also the most widely used cryptocurrency in the world, with a current value of $46,000 and a market cap of over $869 trillion (as of August 17, 2021).

By comparison, the market capitalization of Bitcoin at that time was equal to the combined market capitalization of the 25 largest Australian companies. It rose 19.1% from 16.7% in 2019 as a sign of confidence that more and more Australians are seeing Bitcoin as a store of value.

To truly understand the importance of Bitcoin as an emerging asset class, it is helpful to understand the history of the currency and its relationship to money as a society.

A Brief History of Exchanges: From Barter to Bitcoin

Money is generally considered a  means of payment for goods and services. It is determined by the existence of three functions: unit of account, medium of exchange and store of value. Although the earliest form of exchange was through barter, society has evolved to understand the importance of efficiency in trade, and the need for  more convenient and standardized units of exchange has become apparent.

The predecessor of today's modern currency was born in the Iron Age when a "bimetallic" monetary standard was introduced to establish a fixed exchange rate between silver and gold.

Centuries later, the idea of ​​money, supported by a common belief in value from the other side of the world, was embodied in  the Yap Islands of Micronesia. The 4,444 boulders measuring 3.6 m in diameter and weighing 4000 kg have been used as currency by the islanders for centuries. Rydols were too heavy to be moved and, as tradition, transferred ownership of the stones by adding  new recipients to the stone's oral history.

Banknotes were initially used as a temporary “ransom promise” (in the words of  American economist Milton Friedman) for  precious metals that were too heavy to be moved easily. After with government support, it became a representative currency that guarantees the correct exchange of banknotes for silver and gold. This system, commonly referred to as the "gold standard," dominated much of the world economy in the 19th and 20th centuries.

Already in the 17th century, the federal government outsourced the management of  the production and stability of its currency to a central bank. These are private organizations that enforce a country's monetary policy, often acting as lenders of last resort for banks in desperate need of capital or the government itself. In the era of the gold standard  of the currency, the central bank also managed gold reserves, which were used to maintain the value of the currency.

The outbreak of the Great Depression of the 1930s brought a panic  and many  wanted to exchange their money for the gold that supported them. Since gold-backed currencies cannot increase their supply without proportionally increasing  their gold reserves, governments cannot simply issue money to stimulate the economy as it does today.

In 1931, the United Kingdom became the first world power to abandon the gold standard, no longer redeeming British pounds for physical gold. In 1933, United States President Franklin Roosevelt took the idea a step further and banned ownership of gold by the public. Citizens were required to trade in their gold at a flat ounce rate for US dollars. This had two effects that helped stimulate life into the economy: people had more dollars to spend, and the government could print more money thanks to its increased gold reserves.

Toward the end of World War II, the Bretton Woods agreement designated the US dollar as the currency to which all other currencies would be pegged, effectively replacing the UK pound sterling as the world reserve currency. In turn, the dollar was pegged to the price of gold and foreign governments were able to convert the dollar to gold at the US central bank known as the Federal Reserve.

This system was in effect until 1971 when US President Richard Nixon unexpectedly removed the dollar from the gold standard to address inflation and unemployment. As a result, foreign governments were no longer able to convert their  holdings into gold, which created uncertainty about the future of their currencies.

Nixon's move led the US government to adopt the "banknote" system,  the monetary system that the modern economy dominates today. Banknotes printed on paper or plastic have no intrinsic value and are no longer tied to a physical commodity like gold.

It is simply the government's ability to support and our society's acceptance of this system that makes fiat money retain its value. Because there is no deficit component in the paper system, the government has almost complete control over the supply and value of the currency.

As a result, fiat currencies have a fundamental weakness. Vulnerability to undue influence can lead to serious consequences in some situations (eg hyperinflation and currency devaluation). This vulnerability was one of the main reasons for the evolution of the concept of digital money.

The earliest implementations of the concept were introduced in the late 1980s with Digicash, but did not gain attention until 2008 after an anonymous organization named Satoshi Nakamoto submitted a white paper called Bitcoin: The PeertoPeer Electronic Cash System.

One of the major breakthroughs of this paper was solving the doublespending problem that had plagued earlier digital currencies. In this situation, a digital currency could, through duplication or manipulation, be spent twice.

However, its most fascinating feature was removing the requirement for a central authority to approve the network`s transactions. It was a decentralised, disintermediated system of global value exchange.

The underlying technological capability of the blockchain on which Bitcoin was built presented the opportunity for use cases covering easier payment systems, programmable money, fiatpegged `stablecoins`, and conveyance of digital ownership rights, among others.

Thanks to this technology, the cryptocurrency landscape has grown from Bitcoin to Ethereum and  beyond. Bitcoin, along with its next-generation cryptocurrency platform, is disrupting the business models of traditional financial institutions due to its ability to change the rules of current currency handling and drive out the role of intermediaries from centralized systems.

Correlation between Bitcoin and Ethereum

Since its inception, Ethereum has played the second fiddle after Bitcoin. As a payment method, Bitcoin is usually the more acceptable of the two.

Early adopters and investors saw the potential for Bitcoin to become the new digital “global single currency”. It can compete with or replace the fiat system. However, over time, the popularity of cryptocurrencies increased in new ways. It has seen its usefulness as a means of storing value. This quality has gained popularity over the years and has spread to other crypto assets with relatively stable technical designs.

Historically, the ETH price movement has been more volatile but most often followed the BTC price movement. However, this long-term correlation is not expected to last indefinitely. Although Ethereum does not appear to be a replacement for Bitcoin due to its high flexibility,  it is likely to have more “real utility” than Bitcoin. The release of ETH 2.0 is expected to  give Ethereum an edge over Bitcoin in doubling its network bandwidth and in its ability to host publicly available applications such as those made possible by smart contracts. We are currently seeing a gradual price split between ETH and BTC. The former continues to enjoy new popularity thanks to the

Decentralized Finance (DeFi) and Fundless Token (NFT) movements driving demand. 4,444 stablecoins like Tether (USDT) are currently undergoing a major flow on exchanges. The growing number of competitors such as  Cardano (ADA) and Polkadot (DOT) are further undermining BTC’s market dominance due to capitalization.

The Australian cryptocurrency market is also gaining momentum. Bitcoin's market capitalization has reached a new milestone beyond the total value of the Australian dollar in circulation in March 2021.

A few months later, Ethereum came into the spotlight, overtaking Australia's largest bank in market cap after growing 15x in  a year. Ethereum hit an all-time high of AU$5,645 on 12 May 2021.

Australia's current  adoption situation

According to IRCI 2020, nearly one in five Australians owns some form of cryptocurrency, with 18.4% of participants identified as cryptocurrency holders. This reflects  significant growth compared to the 2019 survey results, especially among investors with a demographic of 2,544 years old.

Bitcoin is undoubtedly the most popular cryptocurrency in Australia, with 74% of respondents reporting that they own it. In terms of holdings of cryptocurrencies, Victoria ranks first with 20% of cryptocurrency ownership, slightly behind New South Wales (19.5%) and Queensland (16.4%).

Overall, 42.7% of Australians who own cryptocurrency reported making money and increasing their wealth  in 2020. The report also indicates that 54.5% of 4554yearolds made a profit in the prior 12 months.

This marks a substantial improvement from the previous year`s figure of 35% for the same age range, and a solid result considering the prolonged bear market that extended from mid2018 through early 2020.

Emergence of blockchain and cryptocurrency in Australia Independentminded and adventurous in spirit, Australians gravitated toward cryptocurrency adoption early on and have had a strong blockchain community for several years.

The community was selfformed before the Australian Digital Commerce Association (ADCA) was founded by Ronald M Tucker in 2014. ADCA`s role was to promote the industry, increase participation and interface, and educate the Australian government`s teams responsible for overseeing digital assets and related payment technology.

At the 2019 APAC Annual Blockchain Conference,  ADCA (formerly ADCCA) and Blockchain Australia (BA) announced the merger to advance blockchain technology in the Asia Pacific region.

The newly merged Blockchain Australia is chaired by CEO Steve Wallas, and its Board of Directors includes Adam Coulter (Chairman), Karen Cohen (Secretary to the Board) and  Anya Nova from Power Ledger, Michael Basina from Piper Alderman, Adriana Belotti from Prismatik and other prominent figures. Characters are included. , Jason Lee of Algorand Foundation, Caroline Bowler of BTC Markets, and John Bassilios of Hall & Wilcox. The board  also includes Adrian Přelozny, Chief Executive Officer of the Independent Reserve, who has served since the founding of ADCA.

Australia's Cryptocurrency Regulations In 2017, the Australian government announced that cryptocurrencies were legal and should be treated as property subject to the Capital Gains Tax (CGT).

The Australian Taxation Office (ATO) has said it is willing to prosecute cryptocurrency traders who misreport income, but since this is a new industry,  who exactly fits the definition of a cryptocurrency trader? While gains and losses from cryptocurrency exchanges are likely to be taxable, this event is slightly more suitable for cryptocurrency miners as the ATO takes the miner's intent into account.

In other words, if you mine cryptocurrencies as a hobby, you do not pay taxes. But if it's a business deal, yes. The ATO has not yet provided a definition to differentiate between the two classifications, so it's difficult to be sure what to actually report.

However, as an investor,  it would be helpful to know what your tax liabilities are. In addition to the tax regulation, the Australian Center for Transaction Reporting and Analysis  (AUSTRAC) is a government regulator responsible for providing financial information to combat abuses of the financial system, such as money laundering and terrorist financing.

On the other hand, the Australian Securities and Investments Commission (ASIC) is independent of the Australian Government and is part of the  Financial Supervisory Commission (CFR). The

CFR is the coordinating body that includes the Australian Prudentials Regulatory Authority (APRA), the Central Bank of Australia and the Australian Treasury. Unlike AUSTRAC, the CFR, as a group, has no regulatory and decision-making authority. This is because these powers are owned and  exercised by  four members.

However, they play a major role in the stability of the Australian financial regulatory system by coordinating the actions of various regulatory bodies.

The Australian government is largely considered "crypto friendly", but there has been a clearer call for cryptographic rules recently.

Speaking as ADCA board director in 2018, Adrian Przelozny lobbied AUSTRAC for increased regulation of the industry, recognising that such regulations created a greater degree of certainty for traders and investors.

It was the same year that AUSTRAC announced the implementation of more robust cryptocurrency exchange regulations and required exchanges to comply with government antimoney laundering and counterterrorism financing (AML/CFT) reporting obligations.

In 2019, to commemorate 10 years of cryptocurrency, the Reserve Bank of Australia (RBA) published a paper titled Cryptocurrency: Ten Years On. Here, the RBA acknowledges that cryptocurrency`s resilience during the `Crypto Winter` of 2018 and 2019 was, at the very least, proof of its status as an investment class.

The RBA even engaged in a blockchain proof of concept project to enhance their own operations in 2020 with global blockchain consultancy ConsenSys. More recently, during the 2021 Australian Blockchain Week, NSW Senator Andrew Bragg mentioned that the absence of a legitimate regulatory framework and policy forces crypto entrepreneurs to pursue friendlier jurisdictions with regulatory clarity.

He noted that the lack of such a structure has left crypto-related businesses “debanked” in Australia and that governments are not prepared for the impending wave of change inspired by breakthroughs in blockchain-based fintech technology. .