Virtual currency is an alternative, digital, unregulated currency. It is not issued or accepted by any central bank or the Government. Unlike the fiat currency, banks do not have any role in the circulation of such currencies. Bitcoin, was one of the first and is the most popular type of such currency. The underlying technology used in Bitcoin is Blockchain.
Besides that, other virtual currencies which are present and acceptable are- Litecoin, Ethereum, ZCash, Dash, Ripple and Monero. There is a limit to creation of the maximum number of bitcoins. Anyone can either mine or purchase Bitcoins; in digital wallets. While some countries have accepted the use of Bitcoins, some do not have regulations governing it, and some others have banned or restricted its use. Recently, Japan has officially recognised bitcoins as a medium of exchange. Robocoin was the first bitcoin ATM in Canada.
Efficient Exchange System
It has high divisibility, and as it is directly exchanged, it operates on low costs. Transactions involving Bitcoins are faster and smarter. With the advance level of technology, transactions can be scheduled to take place at a future date and time. Inter-connectivity among various devices and software can make the accounting, recording, tracking, compilation of data and financial analysis a simpler process. Digitization will ensure fewer possibilities of errors taking place. Forgery and counterfeiting currency is least likely to occur in digital currency.
Resistance to Bitcoin acceptance
Even though authorities can track Bitcoin transactions, there is much perplexity about its control and regulations. The recognition of Bitcoin as a currency is limited. The bitcoin market experiences high volatility and fluctuations. Recently, the value rose to twice the value of gold. As a result, this questions the financial stability of the user entities. This discourages investors, companies, and even governments, to rely on bitcoin as a medium of exchange and investing in entities which use Bitcoins. The stock market would also witness frailty if companies start using bitcoin.
Legal risks and violations
The absence of regulations has prompted its usage in the black market. Illegal transactions of goods like weapons and arms pose a threat on national security. There have been ample cases of unauthorised mining as well. The digital wallets are vulnerable to unauthorised access which can result in leak of data and cyber thefts. Mt Gox was a similar case. Mt Gox was a Bitcoin exchange in international trade. A security breach and theft from its digital wallet led to its bankruptcy in 2014 and a hefty loss of $450 million.
Another case was of the black market operations in the Silk Road where, Ulbritch used bitcoin in the trade of illegal drugs. Consequently, The Federal Bureau of Investigation (FBI) arrested Ross Ulbritch, the culprit, who operated anonymously.
For any currency to be operational in the international market, a number of other factors such as macro-economic factors, globalization effect, money market conditions, type of different economies, political changes, needs to be considered.
Decades ago, the ingenuousness of credit cards sounded infeasible, but now we have prospering, cashless economies. In the future we might have a digital economy, where businesses carry out transactions in the blink of an eye. Also, in this digital economy, countries can use bitcoin or any such virtual currency as a medium of exchange. While blockchain records the transactions and sources, it cannot provide identity of the source. The future of payments might brighten up if it is identified by authorities and, the governments enact appropriate laws governing bitcoin. Thus, stiff regulations for Bitcoin transactions is the need of the hour to solve problems of cyber security and money laundering.Add to favorites