Summary of Virtual Currencies and Beyond

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Rating

7 Overall

7 Importance

7 Innovation

7 Style


Recommendation

Bitcoin, a form of virtual currency, has received a lot of attention in recent years – and for good reason. Virtual currencies can facilitate all sorts of transactions, but because of the anonymity conferred on users, this digital money can fund terrorism, assist in crimes and abet money laundering. A staff team at the International Monetary Fund looks into this rapidly changing phenomenon and makes suggestions for how best to govern it without suppressing innovation. getAbstract recommends this comprehensive and informative report to business managers, economists, policy makers, and anyone with an interest in e-commerce and digital trade.

In this summary, you will learn

  • What risks virtual currencies create,
  • How they fall short in fulfilling some of money’s traditional functions and
  • What challenges virtual currencies pose for regulators.
 

About the Authors

Dong He et al. are staff members of the International Monetary Fund.

 

Summary

Virtual currencies (VCs) serve as “digital representations of value” with which users transact over electronic networks. Unlike digital currencies such as e-money, VCs lack the government backing of traditional fiat monies. Virtual currencies serve to transfer value between two parties through payment and settlement mechanisms specifically engineered for that purpose. A “distributed ledger system” differs from a centralized settlement system in that no central authority mediates the process. Instead, participants are each responsible for verifying transactions. For instance, bitcoin, a cryptocurrency, pays its users, called “miners,” in bitcoins to process payments. This distributed ledger system has the potential to revolutionize other elements of finance, including international money transfers and the settlement of securities transactions.


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    Ethan Brown 3 years ago
    Good Read, IMHO Some of the arguments for how VC's differ from traditional fall a little flat.

    VCs can’t serve as a “store of value” due to their price instability - Money markets are also not completely stable. I posit the more frequent ups and downs are the result of it being a computer based currency and that the traditional currency markets will become just as volatile once they are controlled more by algorithms.

    VC isn’t an “independent unit of account” since transactors gauge a VC’s value by its exchange rate with a legal currency. - By this logic many countries including Saudi Arabia don't have true currencies because they are pegged to the US dollar.

    their use as a “medium of exchange” is also restricted, because only a limited audience pays for and accepts transactions with VCs. - Currently accurate. Similar to how Credit Cards weren't accepted everywhere initially (or at fast food chains until fairly recently). Merchants will find a way to get money if enough customers want to pay with VC.