Virtual Money/Currency

By Rahul Kumar
(SC14B112)

Money /Currency?
Money-medium of exchange ,store of value, unit of
account
Currency-money in any form in actual use or
circulation as medium of exchange
eg. -Indian Rupee, US dollar, etc.
Each currency = main currency unit + fractional
currency unit eg.- Rupee + paise(100 paise=1
Rupee),
Dollar + cents(100
cents = 1 Dollar)
Exchange rate-price at which two currencies can be
exchanged against each other.
eg.-1US Dollar =67.26 Rupees

Some more general points

Earlier Barter like methods (exchange of goods
with goods ), Commodity money (precious
metals, barley etc.)
Now Fiat money (money without use value , but
derives its value by being declared by
government to be legal tender within a nation)
Money supply ,control and production is governed
by Central Bank (has monopoly right to issue
banknotes and coins) of a country.

continues
Digital Currency- form of currency that is
electronically stored and transferred
Can be used to facilitate payment for physical
goods and services in real life
Crypto-currency- type of digital token that relies
on cryptography for chaining together digital
signature of token transfer , networking and
decentralisation
Digital currency using cryptography to secure
transactions

continues
Virtual currency
has been defined in 2012 by European Central
Bank as type of unregulated digital money which
is issued and usually controlled by its developers
In 2013, US department of Treasury but defined it
as medium of exchange that operates like
currency in some environments but does not
have attributes of real currency(that is legal
tender)

Bitcoin
first decentralised digital crypto-currency
Bitcoin foundation claim that bitcoin was designed to be
fully decentralised with miners operating in all countries
and no individual having control over the network
Invented by Satoshi Nakamato
Supply growth- 25 bitcoins per block (approx. every ten
minutes ) until mid 2016 and then 12.5 bitcoins per block
for four years until next halving .This continues until
2110-40 when all 21 millions bitcoins have been issued.
Units bitcoin ,milibitcoin(10^-3
bitcoins),microbitcoin(10^-6 bitcoins),satoshi(10^-8
bitcoins).

continues
Bitcoins are created as a reward for payment
processing work in which users offer computing
power to verify and record payments into a public
ledger,called mining and miners are rewarded with
transaction fees and newly created bitcoins
Bitcoin is virtual as credit cards and online banking
networks people use in everyday
1 Bitcoin = 415.79 US Dollar 27,974.35 Indian
Rupees
Other crypto-currency are
Blackcoin,Dash,DigitalNote, Litecoin,Mastercoin etc.

Problems & Challenges

Virtual currencies pose challenge for central
banks ,financial regulator, department of finance
Securities and Exchange Commission (SEC) also
warned about the same
Extremely risky due to their very high volatility
and potential for pump and dump schemes
Tax leakage problem
Exchange rate policies
Consumer protection