Virtual Currency Advantages Disadvantages 7728


Pros and Cons of Virtual Currencies

Virtual Money is defined as a digital representation of value thatis issued and controlled by its creators. It is used and recognized by membersof a specific virtual community. Virtual money relies on an organization thatcompletely works on trust and unlike regular money, it is not issued by centralbank or any other banking authorities. A virtual currency permits to transfermoney without having to use any sort of intermediary like banks. It uses acryptographic technology called blockchain that forms a collective and publiclydemonstrable file of transactions to stop fraud. This builds trust betweensellers and buyers, thus eradicating the want banks to get involved toauthenticate the procedure.

Globalization, virtualization, active customer participation, costof reduction and networking are indications of altering reality, persuadingalso the financial amenities. Operating payments services currently regulatedby entities of economic trust, which is based on money that is local, made tomake profits, do not have a chance to stay on top of the users’ outlooks.Virtual currencies on the other hand, are the people’s demonstration of theneed for changes in the world of finance. They are made to become universal.The lack of a middle man makes their use very cheap and the idea of cash letspeople create it just the way they like it. They are seen as the money for aworld made of trust. Their acquiescence with the market trends help them jumpover their opponents who are still working with the old rules and hence makenew ideologies for the system as a whole.

Virtual money can be put into three classes and they are “closedvirtual currency schemes, virtual currency schemes with unidirectional flow andvirtual currency schemes with bidirectional flow”. Virtual currency schemeshave almost no connection to the actual economy.  A good example of virtualcurrency schemes is World of Warcraft gold where the gamers are able to paytheir monthly subscription using the gold earned in the game. The second classof virtual money is virtual currency schemes with unidirectional flow. This iswhere points can be bought using real currency at an explicit exchange rate butcannot be exchanged back. Good examples of virtual currency scheme are Amazoncoins and frequent flyer points. Amazon coins is a method of purchase wherecustomers are able to buy products like Kindle fire or Android devices usingdigital coins from the app or from the Amazon Appstore. The last class ofvirtual money is virtual currency schemes with bidirectional flow. This classincludes Second Life Linden Dollars and Bitcoins. Second Life has its very owneconomy and its own currency known as Linden Dollars where the users are ableto buy and sell using a platform called Linden. Similarly, Bitcoin is a form ofdigital currency where encryption methods are used to control the initiation ofunits of currency and confirmation of transfer of funds and it operatesseparately of a country’s central bank.  

Just like a coin that has two sides, any topic that we deal within today’s world has its advantages and disadvantages. Similarly, virtualcurrency has its own advantages and disadvantages but definitely the prosoutweigh the cons. But here is one side of the coin which are the advantages ofvirtual currency. Virtual currency is considered global because if it iscorrectly implemented, cybernetic money can provide its users an internationalplatform for trading. It can also be considered a stage for interoperabilityfor pricing plans and member accounts. This will be effective for a person ifthe merchandise base is steadily valued on an international base. Secondly,virtual money can be considered efficient. This is because if a consumer makesplenty of small transactions, a virtual currency can be added efficiency byallowing micropayments or minor scale outflows very easily and without anyincremental cost.  This releases up a lot of options for payments andbusiness prototypes, specifically if the currency can be communal orcompensated. Also brand plays an important role as prodigious virtual currencycan assist improve and expand a brand relationship. This is every common whenit comes to airline points, membership rewards or any other virtual points andsystems.

The flip side of the coin are the disadvantages of virtualcurrency  and they are basically exchange limitation, security andregulations. When we talk about virtual currency being able to exchange it isvery limited, this is because not a lot of people use virtual currency.Exchanging regular money is easy, sure their value is different but we canstill trade regular money for something else. On the other hand exchangingvirtual currency is much harder, because a bare minimum amount of people usevirtual currency. Another downside about using virtual currency is thesecurity, many times people hacking and trying to mess with the system is beinga regular worry for many companies. This is because there is not a big amountof security for this system yet like federal cash. So security measures isdefinitely a big concern for using virtual currency. Last but not least theregulations are a worrisome factor. There is not a high amount of regulationsfor the virtual currency. The policies are in the shallow grey area and itmight become a concern when dealing with taxes and other issues when dealingwith currency refunds.

One of the key virtual currencies is bitcoins. Bitcoin is a virtual currency, or cryptocurrency, which is measured by a non-regionalized system of customers and is not openly questionable by the notions of the central bank and its officials. “At its peak in March of 2014, the daily volume of Bitcoin transactions in United States dollars exceeded $575,000,000.” To think of the fact that bitcoins was well known and used three years ago is marvelous as it reflects the knowledge of the consumers and the state of the economy. Also the fact that consumers were able to meet their requirements and needs through virtual money is an important thing to be noted. Bitcoin is definitely the prevalent and extensively made use of virtual currency, even though at present there are a few millions of cryptocurrencies in the market.

Iddo de Jong, senior expert in the market integration division ofthe European Central Bank (ECB), states that bitcoins “do not pose a riskto price stability nor can they jeopardize financial stability.” Asbitcoins are an unfettered source of transacting, they carry a factor of dangerfor the people that use them as they do include in the territory of centralbanks’ power. Because Bitcoins have a common platform with other transactionschemes, higher specialist that carefully view the virtual currency get to keepa watch on the trends of the market, develop security necessities for paymentsthat take place within the system and any legal matters with regards to theparticular issues are kept rationalized.

The article written by Griffin “Virtual currencies in thecrosshairs”  states “The government has been able to target both theindividuals involved with Liberty Reserve as well as the institution itself toprosecute AML violations precisely because of its centralized nature: Liberty Reservehad administrators, employees, and even a place of business. So what happenswhen you remove all of the centralized structure around a virtual currency?Bitcoin and other similar decentralized virtual currencies happen. Bitcoin isan open-source “peer-to-peer” digital currency that has noadministrator. Rather, it uses an algorithm that constantly checks itselfagainst other Bitcoin users to verify its amounts and locations.” This articleclearly explains that bitcoins does not need to be administered by FederalReserve or any other government agencies unlike real money that floats around.It is kept account for by the system that repeatedly verifies itself withfurther users of bitcoins to check on the totals and the places where it hasbeen used.

Similar to any customary currencies, like the US dollars or theEuros, Bitcoins also have value comparatively. Bitcoins can also be split upinto fractions that showcase units of less value than a whole number. Atpresent the smallest Bitcoin unit is satoshi which is 1.0E-7/10 Bitcoin. Thiscannot be further fragmented down into lesser units. The structure of Bitcoinsis in a way that it can be broken down further but that is only going to happenif the value of virtual money were to rise.

Bitcoin is the utmost flexible cryptocurrency as it can be madeuse to buy goods from an increasing cluster of dealers that take Bitcoins as asource of payment after a related transaction is complete. Bitcoins can also beswapped with other people that use virtual money for the service rendered orfor paying off debts. It is also used to be traded as other forms of currencieswhich are both the common ones that we use or the other kinds of virtual money.The dark side to this is that it can be made use for buying illegal itemsonline like drugs or firearms with any record being put to what is purchased.

Protection for bitcoins

The impression following bitcoins was to remove the Intermediary,like the government or a financial establishment. It was made to give privacyto the people using it. So, this raises some concern as to who is using it andwhy. There is a big concern from the Federal regulators around the globe thatcriminal organizations are using bitcoins for underhanded business transactionssuch as money laundering, and trafficking. Despite this, unlike cash, bitcoinsleave a footprint by the way of blockchain. The block chain, also called apublic ledger is a place where every transaction is displayed. Every user isgiven something called a “Private key” The key is used to make safetransactions together with a “public key” that knows either people on both endsof the transaction. Even though this can keep an eye on the illegaltransactions, it can have a certain amount of risk for actual users.

Government controls

A fact about the bitcoin is that it is a decentralized currency,meaning it is not controlled by any governments or federal organization. On theother hand, normal money like cash, credit cards and things like that areregulated by the Federal government. Since bitcoin is not regulated, it ishelpful to the buyers because they do not have to pay any high fee forobtaining the bitcoins.

Acquiring bitcoins

What are some ways to get bitcoins? Well one of the most commonway is to trade in money for bitcoins through exchanges. Another way to obtainbitcoin is to exchange them for goods and services, you can also do somethingcalled “mining” which will get you bitcoins. When you are mining, you aremining for the virtual keys which can unlock transactions. The moretransactions you can confirm, the more bitcoins you can acquire which isroughly around twenty-five bitcoins for single transaction.  The problemis that mining needs a specific quantity of computer processing power to lookfor the key that decipher a certain file. It is very time consuming and alsomost houses and office computers do not have that ability, so it can limit alot of technology.

Advantages of Using Bitcoin

Bitcoins are considered to have a very large amount of liquiditywhen compared to other types of cryptocurrencies. Bitcoins are distinctivelymore liquid than its peers in the market. This helps in way to maintain thevalue when exchanging to fiat currencies. On the contrary, other types ofcryptocurrencies cannot be converted directly into other common currencies andif at it is possible they lose a large amount of value associated with it. Inthis matter, Bitcoins can be compared directly to other fiat currencies eventhough it is not possible to buy and sell bitcoins in virtually at time or atany amount. Bitcoins are now a widely accepted form of payment method. Thereare thousands of  dealers that are ready to receive bitcoins as a form ofpayment. It is possible to purchase any item or physical goods that are neededfor daily activities using bitcoins. If a consumer wants to decrease theirinteraction with real money, the acceptance of bitcoins is more likely going tobe a big help for them.

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Bitcoins also make it easier than regular money to do trade worldwide. Business with bitcoins that happen within a country is not any different from bitcoin transactions that happen in other parts of the world or in any other country. When using ATM cards as a form of payment in other countries to buy merchandise or using a debit card to get cash from an ATM, there are often times transactional fees associated. They vary from anywhere between 4%-6% and transferring money may include a fee of 15% of higher. This is not the case when using bitcoins internationally as there is no fees associated with any transactions done using bitcoins outside the home country. When paralleled with other forms of digital payments like PayPal, bitcoins have relatively low or no transactional fees.

Bitcoins also offer way more secrecy and confidentiality whencompared to traditional currencies. When a consumer has their money holding ina bank account or in any other forms of online credit card, it does not guardyour money from any fraudulent actions that are prone in the market. Eventhough most bank accounts and credit card agencies offer fraud protection andprotection from complex attacks , there are private agencies that are able totrack daily transactions and how the money is spent and from where money isreceived. On the other hand, Bitcoins have an in built confidentialityprotection that let all users upon choice to separate their personalidentification from their Bitcoins account. Even though it is easy to keep trackof the flow of Bitcoins between users, it is really difficult to understand whothe users really are or their individuality.

Bitcoins tend to be free from all political agencies. This isbecause Bitcoins are not generated or measured by an individual or governmentalagencies. Because it survives outside the all political power, it is reallydifficult for any government or the powerful authorities to put a hold on orcompletely stop the production of Bitcoins. Bitcoins are not beholden to itsmakers because of its spread out nature, attractiveness and fluidity. Othercryptocurrencies that are less famous than bitcoins are considered to have anintense holding as a major share of units are held by very few people. Thisactually permits the makers of currencies to influence the supply and demandalso with adversely impacting the value of the currencies. At present there areonly 21 million of bitcoins that exist and is more likely to support itssurvival for long term when compared to real money that we use in our dailylives. This is the reason why bitcoins are considered as precious as gold orany other precious metal as bitcoins instill a fear of scarceness in people.The money that we use in our daily lives are not considered scare as if thefederal government runs out, they have the right to print new ones and put outin the market for use.

Disadvantagesof Using Bitcoin

Eventhough Bitcoin is basically liquid and can be traded with ease, it staysvulnerable to crazy price fluctuations over a small amount of time. When Mr.Gox collapse happened, bitcoin’s values dropped by more than half. So after FBImade a statement that they will consider Bitcoin and other similar virtualcurrencies as actual financial services, bitcoin’s worth went up almost the samepercent. Although Bitcoin’s instability occasionally gives small-term benefitsfor tentative traders, it solidifies the currency unbefitting for long-terminvestors. An because Bitcoin’s purchasing ability fluctuates so extensivelyfrom week to week, it is pretty hard for consumers to take advantage of as anappropriate way of trade.

Becauseof bitcoins, many other cryptocurrencies came to being. Even though many arebasically comparable to Bitcoin, they have made quite some developments. Thenewer cryptocurrencies make it hard to keep an eye on the flow of money oridentify the users. Some other cryptocurrencies have something called smartcontract systems that make sure the providers are held responsible for theirword. Some have in house exchanges which will allow users to tradecryptocurrency units for fiat currency units which will in return stop thirdparty trading’s and decreasing risk that are associated to fraud. As time goeson, many of these substitutes can usurp Bitcoin as the biggest cryptocurrencyon the globe. This can easily impact Bitcoin’s value in a negative way.

Since bitcoin has becomeworld’s more popular cryptocurrency, it has seen a lot of scams, fraud andattacks. Many times, these range from small schemes such as bitcoin savings andtrust to big attacks. Other cryptocurrencies do not have the critical number ofusers necessary to make a big problem profitable to the criminals, and whenthat happens such activities are most likely to be taken to the court byauthorities.

Even though there are very public prosecutions of the worst offenders, bitcoins remain very much in high demand for criminals and gray markets users. Dark web marketplaces like “Silk road” and “Sheep” try to reveal and file users to fraud and the threat of going to court. But still the use of immoral activities by upstanding bitcoin users, make a threat to bitcoin’s reputation. It is still very unclear if the international laws are strong enough to make an impact on these problems.

One of the biggestshortcomings of Bitcoin is not having a regulated policy for refunds like theydo for all credit card companies and regular online payments. People who wereaffected by fraud like if they made a purchase but it never came through, insuch cases they cannot ask for a refund with Bitcoins. As a matter of fact,Bitcoin’s decentralized structure will make it pretty much impossible foranyone to settle disagreements between two parties. Even though miners takesome accountability for logging transactions, they are not authorized to assesstheir authenticity. Crypto currencies like Ripple have a simple refund options,but Bitcoin do not have this feature yet.

Accordingto Wozniak, in “Virtual currency schemes – the future of financial services” he says “Virtual currencies open new horizons for finance and redefinesthe concept of money. Their appearance is the incentive for creating theentirely new financial system, based on the principles different to thosepreviously known. Virtual currencies are the starting point for revolution, asthey require focusing on the radically new concepts rather than searching forthe ways of incorporating them into the existing financial system. Theconsequences of such novelties will go far beyond positive impact of the newsolutions on the effectiveness of the system’s functioning. Forthcoming changeswill be so radical and so different from the reality we know, that they areeven hard to imagine, not to mention the describing in details.”

Regardlessof all virtual currencies’ pros and cons, we cannot neglect their role as atraditional money substitute. Virtual currencies are just ahead of our timesand, when reaching the satisfactory level of IT infrastructure, digital coinsmay become a common means of payment, accepted together with or even withoutnational currencies.


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