Cryptocurrency is an online currency created and managed using an advanced encryption technique known as cryptography. In 2009, it made a great leap from being a virtual concept to being a reality with the creation of one of the most popular digital currencies in the world today, the Bitcoin.
While this digital money like Bitcoin attracted a lot of people to invest in it, in recent years, it captured dozens of investors as well as media attention in 2003 when its exchange rate peaked at a record high $266 per Bitcoin after they surged 10-fold in the previous months.
Bitcoin sported a face value of over $2 billion at its highest, but it experienced a 50% dive after its price spiked at its highest, sparking debate from investors about the future of Bitcoin, or the future of cryptocurrency in general. A lot of digital currency sites like VIP Crypto Hedge Fund have been starting to be successful with digital money business.
The big questions are, “Will this virtual money can supplant the fiat currencies and become universal as common currencies like the Dollars, Euros, or the Yuan someday?” Or “Are virtual money like Bitcoin a fad that will be forgotten eventually over time?” The answer to these questions lies with Bitcoin.
The current standard in cryptocurrencies – Bitcoin
It is a decentralized digital currency that uses peer-to-peer technology, that enables them to function as a currency issuance, process transactions, and verification that can be carried out as a group by the network. While the decentralization will provide Bitcoin independence from interference or manipulation of government or any banking institution, the flip side is that cryptocurrency doesn’t have a central authority that governs them and makes sure that things will run smoothly or ensure that the value of Bitcoin is real and not manipulated by the network.
Cryptocurrencies like Bitcoin are created virtually through a mining process that requires a high-powered computer to solve difficult and complex digital algorithms as well as crunch numbers. Bitcoins are produced at the rate of 25 coins per 10 minutes and capped at 21 million, a level that most experts expected to be reached in the year 2140.
The characteristics of Bitcoin make it very different from fiat currencies, which is backed by credit from the government and full faith. Paper money or fiat currencies are highly centralized activities that are supervised by the country’s central bank.
While the central bank regulates the amount of money issued in line with the monetary policy objectives, there’s theoretically no upper limit on how much money can be released. Not only that, the local currency deposits are insured against any failures of the banking system as well as from the government. If you want to know more about Bitcoin, you can visit https://en.wikipedia.org/wiki/Bitcoin.
On the other hand, cryptocurrency like Bitcoin has no support mechanisms. Its value depends on what the investors are willing to pay for the product at any point in time. If the price of Bitcoin shoots down, investors and clients with Bitcoins have no way to get their investment back.
Crypto currency’s significant benefits of transaction anonymity and decentralization made it a favored currency used by criminals and people hosting illegal activities that includes drug peddling, money laundering, illegal smuggling, as well as illicit procurement of weapons.
It attracted the attention of regulation as well as government agencies like FinCEN or Financial Crimes Enforcement Network, the Security Exchange Commission, the Department of Homeland Security, and even the Federal Bureau of Investigation or the FBI. In March 2013, the Financial Crimes Enforcement Network issued a rule that will define the cryptocurrency administrators and exchanges as a money service business.
It brings them within the scope of the government regulation. In May 2013 the Department of Homeland Security froze the account of Mt.Gox, one of the largest Bitcoin exchanges. It was held at Wells Fargo, stating that it broke the anti-money laundering law.
In August, the same year, the Department of Financial Services of New York issued a subpoena to 22 payment companies that might handle Bitcoins, asking their measures on how to prevent illegal activities like money laundering and makes sure that their consumers are always protected at all times.
Click here if you want to read more on the events about Mt.Gox and the cryptocurrency disaster of 2013.
The rise of cryptocurrencies like Bitcoin has sparked a great debate in the financial world about its future. Despite Bitcoin’s issues, the success from 2009 has inspired the creation of other digital currencies like Ripple, MintChip, and Litecoin. A cryptocurrency that wants to start a business in the financial system should satisfy the regulatory commission and meet the criteria set by the government.