| Sažetak | Cryptocurrencies are digital currencies that are one-of-a-kind and impossible to replicate or create at will. They serve as electronic records of specific values stored in electronic wallets on websites that offer this service. They are created by many people all over the world who use software to solve mathematical problems. The development of electronic forms of money began in the 1960s with the introduction of an electronic payment system between banks - EFT POS system, which enabled the circulation of funds through computer systems and networks, the Internet and digital data storage systems, or the use of digital or electronic money (Buterin, Ribarić and Savić, 2015). In 1982, the first cryptographic payment system was introduced, and 6 years later, Chinese computer engineer Wei Dai described the new anonymous B-money electronic payment system, which was more conceptual than practical. In the same year, American computer scientist Nick Szabo created Bit Gold, an electronic currency that functioned on the principle of solving cryptographic tasks for the solution of which users would be rewarded. The resulting solution becomes part of their budget thus creating a chain of new assets, a principle similar to that on which the existence of today’s cryptocurrencies is based (Kim, 2016). The crisis in the financial markets in 2008 caused distrust in financial institutions, monetary and fiscal policy, which resulted in the accelerated development of new forms of financial operations using innovative technologies (Cunjak Mataković and Mataković, 2018). That same year, in 2008, a whitepaper article entitled "Bitcoin: A Peerto-Peer Electronic Cash System" was published, in which Bitcoin - the first virtual currency - was mentioned for the first time. Bitcoin has taken the digital market one step further, decentralized the currency, and freed it from hierarchical governance structures by enabling individuals and organizations to conduct transactions over a peer-to-peer network. It came to the attention of the public in 2011, and after that, many other cryptocurrencies known collectively as altcoin (alternative coins). The first viable digital currencies appeared in the mid-1990s, with e-gold (e-gold), launched in 1996 and backed by gold, being one of the first. It was distinct from conventional payment methods in that it was entirely digital and transactions were non-refundable. E-gold currencies gained in popularity and surpassed 5 million users. Although the claimed currency began in good faith, it swiftly became a shelter for criminals, and the US government closed the e-gold money. Cryptocurrencies are decentralized, which eliminates the need for a mediator between two parties. The primary factors in the function of digital currency development are the advancement of technology and science, the qualitative and quantitative growth of the Internet, the development of cryptography as a distinct scientific discipline, and the advancement of specific technological solutions such as Blockchain software. The development of telecommunication technologies, of which the Internet is certainly the most important infrastructural component in mass use, is reflected in all aspects of life, from technological to scientific, economic, and even social and psychological. It was only a matter of days before it would be used as a medium for economic transactions. In addition to its users, the Internet has evolved over time in technical terms, the speed of access is increasing every day, as well as accessibility with the expansion of telecommunications networks and the development of technology. In the initial phase, as expected, this trend was the strongest in the most developed part of the world. (Cheng, 2014). Cryptography is a multidisciplinary subject that employs mathematics and computer science to enhance the efficiency of data encoding and decoding. The development of computer technology, particularly microprocessors, has paved the way for the application of cryptographic approaches to computer operations that are both more efficient and faster. The development of the so-called hash function is one of the cryptography domains. These are functions that accept a sequence of data of arbitrary length as input and return a specified "signature" or a sequence of characters of a predetermined length. It is crucial that even tiny modifications to the input string result in substantial modifications to the output string, and the speed of the entire process has a direct bearing on the function's usability. It is easy and quick to compute the hash of the input data, but it is difficult to reconstruct the original data set from the hash. This technology is used to assure the authenticity or control of the data in such a way that by confirming the signature (hash), which can be conducted easily and rapidly, the original data's validity can be ensured with a sufficient level of probability. Consequently, the development and improvement of cryptography is unquestionably a prerequisite for the creation of new electronic payment systems and the enhancement of their security, and consequently various types of digital currency. (Burr, 2003)
Blockchain is a database in digital form, which contains a log of all transactions made in the system. It is decentralized in the sense that each participant in the system can keep their own copy. Participants or nodes in the system (nodes) are equal witnesses and controllers of the authenticity of each individual transaction. Transactions are grouped chronologically, in the so-called. transaction blocks. Each block of transactions is digitally "signed" or it is accompanied by a specific digital code (hash) which is a guarantee that the block is authentic, i.e., any attempt to change the contents of the block is very easy to detect. In addition to the above, in addition to a certain number of transactions, each block contains a hash of the previous block, which means that if someone wants to change the contents of a certain block (eg adding or changing transactions), he must change all blocks in a row after the changed block. Thus, blocks are interconnected, hence the term Blockchain. Understanding the blockchain's structure is one of the greatest methods to comprehend its operation. As implied by its moniker, the blockchain consists of a sequence of virtual cubes (called blocks) arranged in a linear, vertical structure. The Genesis Block was the first block ever made and is commonly referred to as the "mother of all blocks." According to the hierarchical organization, all following blocks are organized in different stages (or layers in blockchain parlance) that correspond to their formation time. The most recent block in the chain always appears at the top. Similar to a family tree, blocks with the same parent blocks are considered "siblings" and are on the same tier. Each every block, like human DNA, has a unique identification number of up to 80 characters called a hash. Additionally, each block holds the ID of its predecessor in the same chain. Bitcoin is the oldest and the world's leading cryptocurrency. The term Bitcoin is made up of the English terms “bit” (a digital storage unit) and “coin” (German: coin) and stands for a digital coin. Bitcoin only exist virtually, namely as a digital character string. Unlike conventional currencies, Bitcoin (BTC) is independent of states and banks. In addition, the Internet currency is considered inflation-proof, since its absolute amount is limited to 21 million. That was also the goal of the inventor Satoshi Nakamoto (the pseudonym of the unknown software developer or software developer team). In view of the global economic crisis of 2007, he wanted to provide the world public with an independent transaction system that is cryptographically secured, verifiable and immutable. In 2009 he created the first of today's numerous cryptocurrencies. Every bitcoin transaction is recorded in the blockchain. A blockchain is comparable to a bank's ledger, which records the inflow and outflow of customer funds. It is, to put it simply, a record of every Bitcoin transaction that has ever taken place. The bitcoin blockchain is dispersed across the network, unlike a bank's ledger. This network is open to everyone and is not controlled by any one organization, nation, or other entity. 21 million Bitcoin will ever exist. Since it is digital money, inflation and manipulation cannot possibly have any impact on it. Credit and payments are managed in a decentralized network: the blockchain. A transaction occurs as a block of data. This record contains all bitcoin transactions from a specific time period. The blockchain network verifies the correctness of the block of data and approves the transaction. The block of data then becomes part of the blockchain chain. This means: The blockchain contains all transactions that were carried out with Bitcoin. Bitcoin is subject to strong price fluctuations and is therefore a risk as an investment. Both the Bundesbank and the financial regulator Bafin warn that investors could lose the money they invested if the value fell. Another disadvantage results from the fact that anonymous payments are possible with Bitcoin: Bitcoin is a popular means of payment for criminal transactions on the Darknet. In addition, in ransomware attacks, cybercriminals often demand the ransom in Bitcoin.
Thousands of new cryptocurrencies have been launched since Bitcoin's inception, but Bitcoin (abbreviated to BTC) is still the most successful in terms of market capitalization and trading volume. Litecoin is a cryptocurrency with the same idea as Bitcoin, however it has different characteristics and value. Charles Lee, a former Google engineer, announced Litecoin in 2011 with the goal of being the silver to Bitcoin's gold, as its logo suggests. The main difference is that Litecoin confirms transactions much faster than Bitcoin. DeFi stands for “decentralized finance”. The term refers to blockchain-based applications that perform the types of financial transactions that have always been handled by banks and brokerages. DeFi crypto apps remove the middleman, potentially giving users more control, more flexibility, faster transactions, and lower costs. It is these benefits that led financial analyst Steve Fernandez to headline a recent Banyan Hill article “DeFi Will Kill the Banking Industry”. DeFi is a new term and is not universally understood in the same way. Different people will give different answers to the question “What is DeFi?” When it comes to crypto assets, meaning often evolves. In the most liberal interpretation, almost any smart contract that runs on the blockchain is a DeFi application. But most DeFi applications handle tasks such as lending, investing in cryptocurrencies and derivatives, asset management, and insurance.
Thanks to blockchain technology, DeFi does not need intermediaries like banks, and DeFi applications currently offer services such as lending or saving with high interest rates. All activity is concentrated on the Ethereum blockchain where the most popular applications are located, and which has the most users. The current value of cryptocurrencies locked up in DeFi applications is over $12 billion. Regulation in the European Union
The technology underlying cryptocurrencies and their use has shown to be both very exciting and worrisome. The EU intends to protect users while supporting the advancement of these technologies and their use within the EU. The lack of a central register or other institutions is one of the attractions of cryptocurrencies, since secure and straightforward transactions
between the two parties may be carried out without the use of middlemen. However, this poses serious dangers because there is no regulation and Bitcoin is currently not covered by EU law.
. The legal regulation of cryptocurrencies varies from country to country. Thus, in Canada cryptocurrencies are considered commodities whose gain or loss is taxable by income tax. China as a country is doing everything to prevent cryptocurrencies from becoming part of the financial market, and Japan is very open to them. There are also different approaches within the EU countries, so the Republic of Austria considers mining to be a commercial activity, and cryptocurrencies to be intangible goods, while Finland views cryptocurrencies as alternative investments.
On 24 September 2020, the European Commission sent a Proposal for a Regulation of the European Parliament and of the Council on cryptocurrency markets and amending Directive (EU) 2019/1937 as a comprehensive regulation of the cryptocurrency market, which applies to all those who intend to offer cryptocurrency (tokens) or request listing such assets on trading platforms and on all those that would provide various cryptocurrency brokerage services (trading, custody, receipt and transfer of orders, cryptocurrency advice, etc.) in the EU. The proposal seeks to provide a legal framework for cryptocurrency, support technological innovation and remove possible barriers to the use of new technologies. Within its jurisdiction, the Tax Administration has issued several opinions on tax treatment in which cryptocurrencies are considered a financial transaction and the proceeds from their sale are subject to income tax based on capital gains. The mentioned Fifth Directive adopted the
official definition of virtual currencies, but also the legal regulation of cryptocurrencies in the field of prevention of money laundering and terrorist financing, within the operation of virtual currency exchange offices, as well as with the wallet custodian service provider. |
