Virtual Currency: Where is the trust?

[post deleted by Prof. Jacobs]

 

 

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~ by shirisv on September 22, 2013.

9 Responses to “Virtual Currency: Where is the trust?”

  1. I remember this past summer when bitcoin experienced a huge increase in popularity (and value) and then plummeted almost as fast in about a week. I think that fluctuation had a lot to do with the recent push to regulate bitcoin as any other currency. Add that to the fact that bitcoin can be used on sites like the Silk Road, which is well-known for illicit drug trade, and I can understand why the government would want to regulate bitcoin. At the same time, I think there is some value in untraceable currency and anonymity, which is what bitcoin initially offered. Many people eschew credit cards and debit cards for cash because cash doesn’t leave the paper trail that credit/debit does. Bitcoin (at least initially) sounds like another similar form of cash currency.

  2. Why do we even need to allow alternative forms of currency to be legal? It seems like the overwhelming use of digital currencies is to do things secretively; like launder money, buy things without being traced to your actual credit card or bank, or leaving actual money around to be found by police during a raid. If you’re doing something with money that you don’t want to be traceable, you probably shouldn’t be doing it in the first place. A stable currency is key to the stability of an economy and there should be tight regulation to ensure that the integrity of our money is not undermined. Inflation, exchange rate manipulation, and counterfeiting money are all problems that are compounded when the number of different currencies being used rises. I think the government should think of a way to limit the use of alternative currencies so that the these pitfalls can be avoided.

    • Drew, you raise some valid points. But I dont quite understand how a digital currency would cause the US Dollar problems like inflation, exchange rate manipulation, and counterfeiting?

  3. If virtual currency has value, can be bought with legal tender, can be sold for tangible goods (like a ring tone), then how can anyone claim it is not “money” in the traditional sense. It has value because we give it value; we give it value by accepting it as payment from one business to another. These transactions, no matter what type of currency being used, have real world consequences and should be treated as such. Just because these businesses or games call it “points” or some other designation, has no bearing on what fundamentally is being traded.

    This becomes especially problematic when coders, who are generally not economic or legal experts, are the ones creating the online economy. When issuing virtual currencies in game, the issuer (game creator) must be cognizant of the countries in which the customers are located. This may be unrealistic (and downright impossible) in a virtual context where a customer could potentially be located anywhere in the world. Moreover, having these customers form around the world buying and trading in game could implicate complicated international tax laws. See Maria Korolov, Virtual currency 101, Hypergrid Business (July 2, 2012), available at http://www.hypergridbusiness.com/2012/07/virtual-currency-101/. Without a set of clear cut rules in which virtual currency must adhere to, the onus is put on the game creator to sift through and understand complex tax implications, world-wide money laundering principles and provide real-world reimbursements to customers whose currency was stolen or even currency that was bought fraudulently (like with a stolen credit card).

    Fundamentally, by refusing to classify virtual currency as real world money and only tangentially recognize it as such when complications arise, the powers that be are creating more complex issues. Willful blindness of virtual currency will not protect game users or creators and instead will only provide fodder for those who would use virtual currency as a means to an illegal end.

  4. I believe there is legitimate, practical value in virtual currencies such as Bitcoin. I find value in an alternative currency-transfer system that provides users the ability cut out intermediaries (e.g. Banks, PayPal, Mastercard, Visa), while providing a fast service without any transfer fees. Further, I do not believe there is anything inherently illegal about wanting to purchase any given product with a certain level of anonymity. Naturally, criminals will jump at the opportunity to operate within the confines of a worldwide, decentralized currency system, but I do not believe that somehow outlawing a virtual currency system is the appropriate measure. Narrowly constructed government regulations geared toward deterring illicit activity in this developing medium should be implemented. Outright bans would likely have little effect on illicit activity on a worldwide peer-to-peer network.

  5. Perhaps I do not understand the value of virtual currency but I see no reason why it should exist in its current form. I understand many people feel like the internet is their own little world were “rules” are an after thought, but many of these operations seem to be setup in such a way as to promote criminal behavior. I understand the desire to avoid the use of credit cards, because excessive fees, and to exercise anonymity while shopping on the internet, however I believe the risks this industry may simply be too great to justify its continued use. With that said I was pleased to read the article explaining the creators of these types of programs are attempting to enforce some sort of standards. Hopefully, other forms of Bitcoin will be able to setup their business in a way that complies with law and still serves some of the purposes that law abiding users looking for.

  6. I feel like the United States is really falling behind the ball on virtual currency. Firstly, I have met many foreigners who are quick to comment on our archaic ways of paying each other. Does my landlord really take only handwritten checks? In 2013? And what about the widely discussed launderers who are eluding prosecution for their crimes by using a website my grandmother could probably use?

    My current experiences with virtual currency have arisen in a new iPhone app called Venmo. I used to have to write my roommates checks for utilities and cable. However, now, we all transfer each other money by converting real dollars from our checking account into virtual venmo dollars. We then take this money and can either use it amongst the app or cash out and transfer the money back to our real checking account. This has become an INCREDIBLY useful and fast rising mode of transfering money quickly and easily. My newsfeed shows all of my facebook friends and their transfers, with clever captions meant to describe the transaction such as “Thanks for a terrible dinner” or “You lost the bet, loser” . Some, I assume, are sarcastic, such as “Drug Money Bitch”. But what if they aren’t? Who is monitoring what could be blatant drug sales? No one, as far as I can tell.

  7. Let me make sure I understand. People don’t use actual money to purchase Bitcoins but they can use this currency to purchase actual things from retailers who accept Bitcoin as a form of payment. It seems like a no lose situation, until someone steals all of your Bitcoins.

    Games like Candy Crush and others, which allow the players to purchase coins with real money are essentially ingenious. Pure profit. Yes it ensures that players are more entrenched in the games but this person is essentially just throwing money away. For example with Candy Crush you can purchase life, which is I believe somewhere between $3 and $5. So if the player uses up all of their lives and doesn’t want to wait 24 minutes to get a new life they can just purchase one. When I first saw this, I thought to myself: its not that deep. But people are serious about gaming and will purchase that extra life or that key to unlock the next level. I still think its throwing money away. But I have to admit it is a great idea. The platform owners get something for nothing.

  8. Ultimately, I think that virtual currency is an inevitability whose existence and use we will not be able to halt despite the potential and actual dangers involved. This is due to the simple fact that humans have a certain inherent desire for privacy and anonymity and current internet technology has now given us a unique avenue to create form after form of it with the ability to skirt consequences as with no medium before. The decentralized nature and international span of the internet only furthers the difficulty of any single governmental body to prosecute or curtail adverse effects of these virtual currency exchanging entities. International protocols could theoretically be reached at some point by perhaps even most countries but unless the entire globe is in accord there will be some safe harbor for those looking to satisfy the demand for anonymous exchanges.

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