People have been searching for quite a long time to find alternative forms of currency. This quest for alternative led to the WIR Bank in Switzerland and the Ithaca HOURS system in New York. It also resulted in the invention of Digital Currency. Traditional reserved currencies like gold and silver, still maintaining their popularity as alternative currencies. People tends to look for alternative currencies whenever they lose faith in local currencies. But they remain uncertain whether they will retain their value and protect savings or not.
However, despite the popularity of the established alternative currencies, newly found virtual currencies are also gaining their acceptance. Virtual currencies like Bitcoin have the potential to establish a disruptive global financial system. Different nations decided to regulate Bitcoin market. It could prevent them from ever joining the mainstream.
Virtual currencies are an independent and established banking or money transfer systems. AS virtual currencies don’t have any real-world form, so the value fluctuates depending upon the demand and supply. These virtual currencies don’t default to any government regulations or financial group. So, there is no security over the value fluctuation. All these things in consideration, experts still think these virtual currencies have the potential to provide an alternative to local currencies. Here’s an open view on the need of these digital currencies.
In spite of all the regulations over the virtual currency such as Bitcoin and Ripple, not only the users but also the experts can’t deny the potential of virtual currency. Virtual currencies have been getting a lot of attention from various corporate finances. On 11 April, 2104, Ripple developing company, OpenCoin announced that it has sealed a deal round of funding from Andreessen Horowitz, FF Angel IV, Lightspeed Venture Partners, Vast Ventures, and the Bitcoin Opportunity Fund. It provided an investment vehicle for bitcoins and Bitcoin related companies.
In the same month, around $9m was invested in OpenCoin and two other Bitcoin related companies – BitPay and CoinBase. Then in late May, New York firm Liberty City Ventures announced that it too had set up a $15m fund to back Bitcoin and other digital currency companies.
Despite increasing market across the world, the market volume is still relatively small. Recent total market capitalization of Bitcoin was around $10bn, a grain in the sand compared to other hard currencies and the global financial system. Additionally, digital currencies and their online exchanges remain extremely vulnerable to security breaches and distributed denial of service (DDOS) attacks.
Due to the anonymous nature of bitcoin transactions, the security of the system is dependent upon the honesty and integrity of its users. Mt.Gox suffered an enormous security breach in June in 2011, following the first real boom in bitcoin value. The incidence led to the leaking of usernames, email addresses and encoded passwords and other critical user information. And the value of a bitcoin dropped down to just one cent due to fraudulent trading. Also in 2011, a Polish bitcoin exchange lost access to its own bitcoin account, making all its funds inaccessible.
Regulation of Digital currency
Bitcoin market started as an independent currency system, but things have changed recently. In March 2013 the US Treasury Department’s anti-money laundering (AML) unit, the Financial Crimes and Enforcement Network (FinCEN), stated that digital currency firms must comply with the same AML regulations as other financial institutions, including monitoring customers and reporting suspicious activity.
The Digital Currency market is steadily growing as well as its community. At one side, there is a debate fuming up in the community about its acceptance long after the initiation. On the other hand, you got vast potential of the digital currency network with lots of useful properties. All of that sums up a disruptive but bright future ahead for the virtual currency.