The Creation of Virtual Currency Schemes Finance

A currency is the word refers to money in any form when it is used or actually distributed as a medium of exchange.

The exchange rate of currency in relation to other currencies represents the price of currency being expressed in terms of another currency or otherwise the expression in a national currency of a monetary unit price of the foreign country.

A virtual currency is defined as digital money which is not regulated by any public authority and is used within a specific virtual community. The purpose of this paper is to examine the issues surrounding the creation of virtual currency. To examine these issues, the creation of monetary value is discussed and the consequences of the creation of the monetary value.

Virtual currency is usually controlled by its developers, for instance Linden dollars are controlled by the Linden Lab. There are different types of virtual currency, obtained through subscription fees usually for games like World of Warcraft. You can only buy goods and services in the virtual community and cannot exchange the virtual currency for real money. The other type is where real money is used to buy virtual currency, an example is Facebook credits where credit cards are used to buy Facebook credits and it is used to buy virtual goods and services in the virtual community and real goods however the virtual currency cannot be exchanged back to real currency. The last type of virtual currency is one that it bought by real currency which can be used to buy goods and services in a virtual community and also real goods and services where virtual currency is accepted by retailers and can also be converted to real currency.

The main reason for the creation of these virtual currencies according to the developers is to create an alternative to the currency issued by the Central Bank. They are easy to use and improve efficiency in carrying out payments because it is not bound by any country. Bitcoins strives on this concept of trying to end the monopoly of Central Banks, providing a cheap and secure way to perform transactions. According to Satoshi Nakamoto, the creator of Bitcoins, Bitcoins are intended to be digital currency which is based on cryptography and peer-to-peer networks hence replace the requirement of trust we need to place in the legal system and institutions.

Virtual currency like Bitcoins is highly volatile and the monetary policy is shaped by the user as there is no control by a central authority. Any policy is through peer to peer formulation q1agreeing on the way the transactions are carried out. Even though there is no central authority Bitcoin scheme has a guideline on how Bitcoins work and from there it has continually developed due to the different demands and challenges the scheme has faced. Bitcoin exchange houses have been set up to improve the ease of exchanging the Bitcoins and also this to some extent improved the liquidity.

Virtual currency schemes are usually based on anonymous transactions. Many governments have been concerned by the potential hazards virtual currency pose, like money laundering and drug money. Criminals can easily make transactions involving large sums of money without being traced. The developer of Bitcoins, Satoshi Nakamoto which is a pseudonym apparently ditched the project to start on other projects which raise the concern of the trustworthiness of the whole scheme.