# discussion responses with references

Discussion responses with references

1-The transition from foreign currencies to cryptocurrencies, such as Bitcoin and Ethereum, could be challenging, but it is not impossible. There are several critical factors that contribute to the global adoption of digital assets. In order to be a viable currency, cryptocurrencies need to achieve price stability. In the present day, most digital assets have a volatile nature, making them unsuitable as stable exchange mediums. Cryptocurrency usage requires a coherent framework from governments and regulatory bodies around the world. In addition to taxation, it involves issues of anti-money laundering (AML) and counterterrorism financing (CTF). To be widely accepted, cryptocurrencies must be seamlessly integrated with existing financial systems and easily convertible into other digital assets and fiat currencies.

A monumental task lies ahead when it comes to harmonizing regulations on a global scale. The legal status of cryptocurrencies varies greatly from country to country, ranging from outright bans to full acceptance by governments. It is crucial to improve blockchain scalability and security in order to handle a large number of transactions efficiently. It will take time to build trust between consumers and businesses. It is essential to educate people about the risks and benefits of using digital assets. In the current system, governments control their monetary policies through fiat currencies, which they hold in reserve.

Current Method: The current exchange rate is used to translate assets and liabilities. Digital asset value fluctuations would need to be closely monitored and standardized globally if cryptocurrencies become dominant.

Temporal Method: In this method, historical exchange rates are used to determine exchange rates for specific items. Managing historical value calculations effectively will require new accounting standards because of cryptocurrencies’ inherent volatility.

A range of derivatives based on cryptocurrency values would have to be added to the derivatives market. The volatility of cryptocurrency can be hedged with futures, options, and swaps.

Due to the decentralized nature of cryptocurrencies and their supply mechanisms, valuation models for derivatives would have to be updated.

2- Can cryptocurrency replace regular money?

While looks possible for a cryptocurrency to replace normal money, there are significant obstacles in the way first. For people and businesses to use a cryptocurrency as an everyday currency, its value would need to stabilize and not jump up and down like Bitcoin has done (The Age, 2022).

Cryptocurrencies also currently lack credibility from institutions and regulatory approval from world governments (Blockchain Smart Solutions, 2023). Most nations currently do not accept cryptocurrencies as legal due to concerns about the way it works, insufficient supervision and potential for illegal use.

Given the huge technological, regulatory, and adoption barriers, this mass replacement of normal money by cryptocurrencies would likely be an extremely gradual process happening over multiple decades (Atlantic Council, 2024). While more advanced countries may adopt cryptocurrencies sooner, it will take many years for less wealthy countries to fully transition.

If cryptocurrencies eventually replace traditional money, they could change and automate how we do payments, money transfers, trading, investing, and other financial activities (Reiff, 2019). It also would change financial privacy and anonymity, meaning that taxes, anti-money laundering rules, and financial regulations would need to be adapted.

3- Cryptocurrency has become a hot topic within the last few years and gets special attention not only in the public media but also from regulatory agencies. More and more companies obtain and use this type of asset and therefore FASB had to implement necessary changes to the standards in order to keep them up to date. The objectives of the amendments are to provide investors and other capital allocators with more decision-useful information that better reflects the underlying economics of crypto assets within the scope and an entity’s financial position while reducing cost and complexity associated with applying cost-less-impairment accounting (FASB, 2023). So far, cryptocurrency has not officially been determined as the fiat currency. According to FASB ASC 350-60, crypto must be accounted for as an intangible asset and the entities are required to measure crypto assets at fair value, with changes in fair value included in net income for each reporting period.

Surely, cryptocurrency could make major changes by becoming the currency accepted by most countries. However, it seems to be impossible so far, especially in countries with developed economies. According to the Chainalysis Team, worldwide grassroots crypto adoption is down (Chainalysis, 2023). Specifically, it was related to a recent major fraud in FTX that put the reputation of cryptocurrency down. Therefore, certain instability and lack of trust related to crypto might be one of the biggest challenges and require a significant amount of time in order to become the replacement for fiat currencies. Additionally, the absence of third-party involvement (banks) in cryptocurrency transactions and the anonymousness of the users (digital currencies are not linked to personal data) make it riskier and even more trustless. Also, there are many concerns related to the level of protection due to potential hacker attacks.

The official acceptance of cryptocurrency as fiat currency will require major changes in accounting standards and modification of currency translation methods such as the current rate method and the temporal method. The decentralized nature of cryptocurrency will require the establishment of a new framework in order to keep the financial reporting process effective and protect investors and other stakeholders. Significant fluctuations in the cryptocurrency rate are another factor that can have a significant impact on the financial reporting process. For example, according to the YCharts website, Bitcoin price is at a current level (June 12) of 67329.15 USD, down from 69493 USD.18 yesterday and up from 25910.36 USD one year ago. This is a change of -3.11% from yesterday and 159.9% from one year ago (Ycharts, 2024). Such drastic fluctuations can cause significant risks for buyers and sellers and therefore, not many of them are willing to make transactions in cryptocurrency because its value can be significantly changed within a few days in unpredictable ways and cause major losses. Therefore, it can be concluded that currently cryptocurrency cannot replace foreign currency anytime soon due to various factors that require major improvements and changes at the worldwide level.