While Bitcoin and other top coins are often touted as having the best speculative investment potential, the thing that sets them apart is their volatility. While the value of a Bitcoin or Ethereum can fluctuate wildly, compared to an asset like gold or silver that is pure in its value, it is volatile and uncertain.
For the past few weeks, there’s been a lot of speculation about the direction that Bitcoin will take in the coming months. Some believe it’s time to move to a different cryptocurrency, claiming that the current state of affairs is unsustainable. Others believe that Bitcoin has hit its bottom and that it’s now time to buy, while a select few have made predictions about which coin will become the new bitcoin.
The world of cryptocurrency is changing rapidly, which makes it difficult for newcomers to track their finances and stay on top of the market. What’s more, the long-term outlook for cryptocurrency is becoming less clear, and the future direction of the market is unknown.. Read more about what happened to cryptocurrency today and let us know what you think.
If you can’t measure it, you can’t manage it – this is probably the most quoted quote attributed to Peter Drucker, known as the father of management thinking. Although this quote is apocryphal, it has nonetheless won its place in the pantheon of business books because it emphasizes the importance of reliable measurements in making sound business decisions. In the cryptocurrency space, we are still missing one of the most important metrics: the official daily reference exchange rate.
The reference rate is critical for auditors to determine the specific exchange rate between two or more currencies at a given time, even though those currencies may have fluctuated after a certain point. The base rate is a common reference for companies, investors, accountants and regulators.
It’s no coincidence that more than 10 years after the first bitcoin (BTC) was mined, this crucial metric is still missing from the ecosystem. In the monetary economy, central banks are responsible for setting the reference exchange rate on the basis of a regular daily agreement procedure. But in cryptocurrencies, we don’t have a central bank concept – we completely reject the concept of a centralized monetary authority. However, this leads to a fragmented landscape of unofficial tariffs, with different exchanges and aggregators setting different prices, which can lead to confusion and in some cases fraud.
Related: Professional traders need one global crypto, not hundreds of lakes
You may be wondering: Why is this so important? Perhaps a decentralized economy does not need a formal daily settlement rate. That may have been true a few years ago, but not anymore. The cryptocurrency markets are growing inexorably in size, market capitalization and adoption. Research shows that we have reached over 100 million cryptocurrency holders worldwide, roughly the same number as the population of Egypt. There are approximately 43 million active cryptocurrency traders and up to 500,000 unique users who send or receive cryptocurrencies every day.
We knew that the recent rally of cryptocurrencies would fuel a new wave of interest in crypto assets, especially with its equally predictable hype. But we also know that with each wave of blockchain tourism, the industry grows. This time, the market and the players have behaved differently than during the last cryptocurrency craze in 2017. More and more institutional investors are entering the market, making it more sophisticated and complex, and certainly more mature.
Related: Steps to be taken to introduce institutional investment
Those of us who have been in the crypto space long enough also know that behind the ups and downs of the market is a legion of brilliant people creating incredible blockchain and cryptocurrency projects. Currently, the decentralized ecosystem has many companies operating in a variety of specialties in different jurisdictions. However, this means that you need to consider the cost of these operations. They must plan budgets, value assets, pay taxes and process transactions in multiple currencies – cryptocurrencies and fiat – at different times and even on different days of the week to accommodate time zones.
Decentralised exchange rate
The Wild West of cryptocurrencies is over, which means asset values are no longer open to interpretation. We need an official reference rate, and without it, accountants can’t accurately value cryptocurrencies on the balance sheet. This leaves the door open to fraud and slows down the promotion of cryptocurrencies as a major asset in corporate accounts. According to the 2018 Global Blockchain Survey by PricewaterhouseCoopers (PwC), audit and compliance issues are among the top six barriers to blockchain adoption.
A reference rate would benefit the main actors of decentralised funding. For accountants, it will provide a common, standardized way to value crypto assets, better protecting them from fraud. For investors, this provides a true apples-to-apples comparison when evaluating investment opportunities. It will be a tool for auditors to independently verify that a company is properly valuing its assets – and not committing fraud.
From an accounting perspective, the current system is a nightmare. A handful of actors have placed themselves in a position of interest-determining power. There is a lack of rules and guidelines on the origin and timing of information. This leads to significant price differences between the various unofficial sources of exchange rates.
For those of us dedicated to developing decentralized billing protocols, it’s only natural to look for decentralized solutions. Now that Chainlink’s decentralized price streams have become the de facto standard, it is time to innovate further and develop an official reference price for all crypto assets that is transparent, independent and methodologically sound. A widely used daily exchange rate that investors, companies and accountants can rely on to determine the value of all crypto assets and currency transactions at the end of a given period.
The current consensus is to keep your crypto currency on the balance sheet as a hedge against inflation. But we need to prepare for a future where physical businesses and ordinary enterprises will start experimenting with billing goods and services in their preferred cryptocurrencies, writing contracts in cryptocurrencies, paying suppliers and employees, and calculating taxes in cryptocurrencies. This is the future we are working towards, which is why cryptocurrencies need a decentralized daily reference rate.
This article contains no investment advice or recommendations. Any investment or business transaction involves risk, and readers should do their own research before making a decision.
The views, thoughts and opinions expressed herein are those of the author and do not necessarily reflect or represent those of Cointelegraph.
Chris D’Costa is the founder of Totem Accounting and the inventor and driving force behind the introduction of the live peer-to-peer accounting protocol. Prior to joining Totem, Chris spent over 20 years designing and implementing accounting, business intelligence and enterprise resource planning (ERP) systems.What would the world look like if we had a true, reliable and decentralized daily reference rate? Where would we get our news? How would we pay for things? Who would decide how much to charge to use the Internet? How would we know what the price of Bitcoin was when we bought it? How would we calculate our retirement planning?. Read more about dubai bitcoin and let us know what you think.
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