ALTERNATIVE DIGITAL

CURRENCIES

Kartik Uppal
Research
822409116
Paper
ECON 2001 0BF

Technological research has allowed innovation in many industries including

manufacturing and many other aspects of business. Through history the means in
which products and services are exchanged . From what was known as the barter
system, goods were to be exchanged for another item rather be exchanged for a
monetary currency. The gold standard was later adapted which evidently led to the
creation of the twenty-first centurys monetary system (Castronova, 2014). In recent
years the introduction of virtual currency also known as cryptocurrency has
provided businesses and consumers a new medium of exchange (Hoelscher, 2014).
Although these alternative forms of currency such as Bitcoin exist, many firms
perceive the use of such currencies extremely volatile and risky. However the rate
in which these cryptocurrencies have been adapted, the virtual money economy is
now larger than the economies of real countries (Castronova, 2014). Likewise with
the increased popularity, players of the underground economy have begun to use
virtual currencies as a means of private, confidential monetary exchange (Forbes
2013). There are many opportunities and challenges created through the
introduction of such currencies, which can evidently impact the financial system
that will exist in the future.

Opportunities:
The first introduction of the Bitcoin persisted through an indirect purchase of
pizza for what is known as ten thousand BTC. Many information system based firms
such as Wikileaks have accepted bitcoins as a currency in which to accept funds
such as donations. As more businesses are created the competition for a customers
asset has encouraged many firms to accept Bitcoins and other virtual currencies as
a form of payment. Cryptocurrencies provide the users with freedom in payment,
control & security and low transaction costs. (Coinreport, 2014)
Freedom of Payment:
The standardization of mobile and technological infrastructure has allowed access
to virtual currencies all over the globe. All transactions are completed electronically
hence its possible to send money virtually anywhere in the world, without
restrictions of time. Physical hurdles are eliminated in terms of moving the currency
and one does not need to rely on banking institutions and accommodate to the
banks schedule. (Coinreport, 2014) Business can be conducted in areas of crime
and financial risk ensuring fair and accuracy. Due to the decentralization of
cryptocurrency, no control is placed over the virtual currencies, as in governmental
and financial institutions do not have a market influence on the currency value.
(Coinreport, 2014)
Security:
Unlike many goods and service industries, businesses using cryptocurrency are
unable to charge additional amounts to consumers. The centralized financial
industry is influenced heavily by credit sales, in which monetary exchange does not
always occur. (Coinreport, 2014) Virtual currencies do not utilize a credit system,

therefor one cannot be obligated to pay for any good or service unless is agreed by
both parties. Public information such as business names and addresses are provided
with virtual transactions however personal information of the user remains
confidential. This can provide consumers and businesses with security knowing that
transaction information is secure and reliable and free of identity theft. Due to the
cloud nature of cryptocurrencies encryption and backup storage is seamless
allowing virtual currency to be safe and secure. Bitcoin and other virtual
currencies difference from dollarthere no central bank or government facing them.
Technology and the level of acceptance in Bitcoin, are what determine its
viability (Bitcoin: A virtual reality check, 2014)
Minimum Transactional Costs:
Cryptocurrencies provide a low cost solution in alternative to novel payment
methods such as cash or credit. (Temporary Limbo 2014). Currently there is no fee
charged in order to conduct transaction through virtual currencies such as bitcoin.
However, users are encouraged to pay a voluntary for confirmation. (What is
Bitcoin, 2014) Information can be processed based on priority basis, in other words
firms can pay to conduct transactions faster but still at a fraction of the costs
through traditional payment methods. Annuities paid to financial institutions and
creditors are ultimately eliminated through the standardization of cryptocurrencies.

Disadvantages:
Like traditional currency, crypto currency can to be exploited to satisfy the needs of
criminal organizations. Anonymity can protect both buyer and seller. Black market
firms can use these currencies to acquire funds which can be used for criminal or
political activities. Cryptocurrencies such as Bitcoins can undermine governmental
agencies attempts at cutting of cash flows.
Legality:
There are a variety of issues concerning the legality from the misuse of such
cryptocurrencies. Several countries including China have disallowed financial
institutions from using Bitcoins as early as 2013. (Bitcoin Magazine, 2015). Nations
that have imposed restrictions upon international exchange have also banned such
cryptocurrencies. (MBL.is, 2013). Even in nations where the currency is legal, the
use of the currency to purchase a good or services prohibited. (Forbes, 2014).
Despite restrictions imposed, few arrests can be made or infractions can be
detected as it is very difficult to track such payments. Money laundering is common
with such currencies for that reason. (ACFE, 2014).
Fraud:
The Security Exchanges Commission has jurisdiction in cases involving fraud with
cryptocurrency as Bitcoin is can be used to purchase goods and services. However
outside of the U.S, fraud is difficult to detect and follow up. A Chinese bitcoin trading
platform known as GBL mysteriously shut down, losing almost $5 million worth of
currency (21st Century Wire, 2013). During early 2014, the worlds largest bitcoin

declared bankruptcy due to theft. (Bloomberg News, 2014) These technical risks of
cryptocurrencies are unforeseen as not all technological risk are evident due to its
recent introduction. With the unforeseen risk of exchanging bitcoin through such
institutions, illicit underground black markets are created, with both legal and illegal
participants. As difficult as it is tracking cryptocurrency exchanges, accounting for
them has posed as a great difficulty due to anonymity of the transactions. Several
issues are raised in concerns to taxes can provide incentive to organizations looking
to evade taxes.

Crypto Mining:
During early adoption, many cryptocurrencies were overvalued giving
attention to cyber criminals. Criminal organizations with intent of stealing
information and ultimately currency through the use of Bitcoin data mining
software, malware tools etc. These criminals can go even further by providing
customers with the resources to also commit data theft, for a fee. Some
cryptocurrencies inherenty disadvantage late adopters, by mining a set amount
prior to the currency being released to the public. This is a deceptive practice,
leaving creators and early adopters of such cryptocurrencies with an unfair
advantage. (Griffin, 2014)

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