Digital Currency Essay Example

Introduction

Digital currency is a form of cash that exists electronically and digitally. It is not tangible, but it is countable. It allows people to do transactions without holding money physically, which permits for fast and reliable cash transfers. Digital currency is safer than physical notes and coins which can get lost, stolen or succumb in case of a fore or floods. Digital currency relies on technologies like smartphones, computer and the internet for transfer. Digital currency can be used for various services like goods purchase, paying bills and even school fees settlement. However, digital currency, also called cyber-cash, is still limited to some users. This is because the infrastructure and technology required to run the currency are still emerging, and it exhibits a few challenges that need to get settled to spread the technology through the whole globe. Digital currencies are safer to handle and incur few transaction costs as opposed to handling liquid money that can undergo through many intermediaries before getting to the intended person (Berentsen & Schar, 2018).

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

Laws governing digital currency in Australia

Australia is among the first countries to implement the use of digital currency. However, it follows some regulations towards the people offering the money transfer technology to ensure that business and money ethics uphold in Australia. The agency concerned with digital money in Australia is the Digital Currency Exchange (DCE). They control all services involving cyber-cash transactions. The agency got implemented by Australia's Financial Intelligence Agency, Australian Transaction Reports and Analysis Centre (AUSTRAC) and the counter-terrorism financing regulator (AML/CTF). These parties keep the actions of the DCE in check, ensuring that all ethics and rules get observed and protect people's accounts from cyber theft and use of the technology by terrorist to plan their attacks on innocent people. One of the rules set by AML/CTF for DCE is that the DCE must undergo a registration procedure for their business activities under the AUSTRAC before they commence their services. During the registration, the company needed to present national police certificates, specific business descriptions and personal checks for its workers to verify them for their authenticity to own such a company. The company also presents its history and its previous achievements in its line of services (White, 2007, n.p)

Every DCE business beginning after the 14th of June, 2018, must present the legal documentation given after the AUSTRAC registration process. Another rule is that a DCE company is expected to comply with the anti-terror tech rules to minimize the risks of cyber theft and terrorist financing. Also, the institutions have to keep updated records of all its customer, giving their real and verified identities to avoid inhabiting terrorists without their knowledge. The records must be kept safely for as long as seven years. Also, AML requires the DCE institutions to keep a close look to any group or person that deals with large amounts of capital ranging from $ 10,000 and above and forward the information to AUSTRAC for further investigation on the people. Any digital currency company operating without getting registered to the AUSTRAC is termed as doing illegal and criminal activities and must get charged for those allegations. Digital currency is meant to reduce cyber theft, and therefore it should be their number one areas of concern, to help catch the cyber terrorists that are increasing in Australia (AUSTRAC, 2018, n.p).

Types of digital currencies

Ripple

A kind of cyber-cash system mainly used to perform international payments. It allows for the transfer of money in various forms including bitcoins, USD or lite coin. Ripple has a complicated procedure but is very important because it finds a way to act as a bridge between international transactions that use various currencies. Ripple functions under an open source internet procedure that is decentralized. Its activities are very facts, efficient, affordable and hence reliable (Chuen, 2015, n.p)

Dash

Another form of crypto-currency originally known as a dark coin. This currency was specially made to enhance customer privacy. It also happens to be a form of digital cash that can be used anywhere for purchase or payment of services. It achieves its special features by use of the X11 algorithm and the Conjoin mixing technique for muddle transactions promoting privacy. It is among the fastest and safe digital currencies around the globe (Chuen, 2015, n.p)

Ethereum

Specially made for smart transactions, Ethereum is characterized by being a decentralized, based on blockchain and open sourced. Smart transactions are technologically programmed to run on their own as instructed before by principle of code is law. It is efficient because it does not require monitoring or security measures because it is designed to be free from any external interferences. However, the program is not exempted from cyber theft, which led to the emergence of a safer version (Chuen, 2015, n.p)

Peer coin

The first form of digital currency to do a successful integration of proof-of-work and proof-of-stake. It's solved most challenges faced with the bitcoin like high energy consumption and insecurity. Peer coin is therefore much safer and energy conserving, which makes it more advantageous than the bitcoin (Zacarias, Bhattacharya, Bower &Grove, 2014, n.p).

Cryptocurrency (Bitcoin)

Most used type of digital money because it is easy to use and apply. It does not require someone to understand everything about bitcoin to use it, but a simple download of the application, it's installation, and following of clear and simple steps. It is used to facilitate trade activities among the digital currency among people with the hub culture. Bitcoin refers to the digital money that exists in the decentralized peer-to-peer network as a means for making payment, which supposes the generally recognized financial institutions. Hence, Bitcoin refers to a hybrid of commodity currency and fiat currency. Bitcoin seems to have recognition as the world leading crypto-currency. The high volatility nature of bitcoin value increased on the coin-desk as the Bitcoin Price Index (BPI) from $1000 to nearly $20,000. Increase in bitcoin prices more than doubled its value in the financial market. Even in 2018, the amount of bitcoin still shows consistent high values (Dwyer, 2015, p.81-91).

Economists have research findings from financial analysts explaining the BPI phenomenon. One factor that resulted in such spikes in value was the legal framework and government regulations. In 2017, many governments supported the use of bitcoin, hence causing amendments of regulations from jurisdictions that regard it as legal currency prompting the rice in its price. Consequently, an increase in government regulations to control decentralized currencies causes them to lose their value. In 2017, Bitcoin became legalized in numerous countries, which increased the prices. Top on the list was Japan. When the government of Japan announced their bid to accept bitcoin as a legal mode of payment, the digital currency rose by 2.8% to a value of $1,133 per coin (Cocking, 2018, p. 1). Hence, amidst arising challenges from individual countries to legalize the use of digital currencies, the financial market will continue experiencing fluctuation in bitcoin prices (Tschorsch & Scheuermann, 2016, 2084-2123).

Bitcoin is a representation of virtual monetary unit and thus lacks physical descriptions. There are no central authorities for keeping accounts on bitcoin. Nonetheless, there exist present rules and opportunities for persons to monitor adherence to the current standards. For people to use bitcoin, there are procedures to download bitcoin wallet, the software for storage, and sending and receiving bitcoin in units. After attaining the portfolio, persons frequently exchange bitcoin with local currency like the USA dollar (Dwyer, 2015, p.81-91)

The chart on Trends in Bitcoins, Ripple, Dash, Ethereum and Peer Coin

Blockchain concept

Blockchain was started to give way to future technological improvements by software engineers. It includes decentralized applications interconnected to each other to improve a previously set technology, like the bitcoin. It involves decentralized consensus where the bitcoin protocol scheme shares its power to a public network ensuring that the nodes continuously allow a smooth flow of data recording. This increases security and efficiency of bitcoin. It is hard for cyber theft to attack such an operation. Each node is secured with a unique fingerprint from the node before it, to keep the nodes interconnected and free from hacking. It, therefore, makes the source secure. It also prevents the issue of double-recording of a single transaction that can bring misunderstanding and loss of money. The blockchain allows anyone to verify the originality of stored data, but they cannot access the inside of it without going through the author or the programmers, which keeps everything safe (Pilkington, 2016, p. 225).

The encryption procedure ensures that no third party can access people's account balances or transactions. Also, it ensures that no one can temper with customers' accounts in an attempt to steal their money or corrupt their accounts. Blockchain has a series of smart contracts that make it possible for decentralized applications. It gives the power to the blockchain to confirm transaction among two or more parties without tampering with the information inside. Blockchains also increase the compatibility and trust between computers in keeping data through secret coding. Blockchain also consists of the proof of work, which allows for verification of work without changing the records. The records are unchangeable because it is designed to be impossible to alter. The blocks, which contain all bitcoin transactions and information, are hence safe from any cyber insecurity (Pilkington, 2016, p. 225).

Conclusion

Digital currency still need more improvements and financial input to make it reach every part of the globe. It is better than carrying notes and coins. Therefore, every country must look at the new trend in financial developments and technology in securing business transactions and their money. Although it is expensive to install, it very effective in the long run. It will be a lot easier to operate with digital money that is dealing with the current cash systems.

Works Cited

AUSTRAC, 2018, New Australian Laws to Regulate Cryptocurrency Providers. Commonwealth of Australia - AUSTRAC.

Berentsen, Aleksander, and Schar, Fabian, 2018, A Short Introduction to the World of Cryptocurrencies, Federal Reserve Bank of St. Louis Review

Chuen, D.L.K. ed., 2015. Handbook of digital currency: Bitcoin, innovation, financial instruments, and big data. Academic Press.Digital Currency Regulatory Guidance, 2017, Illinois Department of Finance and Professional Regulations.Digital Currency Regulatory Guidance.

Dwyer, G.P., 2015. The economics of Bitcoin and similar private digital currencies. Journal of Financial Stability, 17, pp.81-91.

Pilkington, M., 2016. 11 Blockchain technology: principles and applications. Research handbook on digital transformations, p.225.

Tschorsch, F. and Scheuermann, B., 2016. Bitcoin and beyond: A techni...