Bitcoins: Neither Substitutes nor Subordinates for E-Money

Abstract

Virtual communities have proliferated in recent years - phenomenon triggered by technological developments and by the increased use of the internet. Virtual currency is considered to be a specific type of electronic money mostly used for online transactions. Virtual currency no doubt fulfils some of the criteria meant for e money; there is one basic difference. E-money is primarily subject to the operational risks. In contrast virtual currencies face credit, liquidity and operational risk without any kind of underlying legal framework. Bit coin is the world’s first completely decentralised digital currency. Bitcoin is probably the most successful and probably most controversial- virtual currency scheme to date. Bit coins are ‘mined similarly to gold meaning there is a finite supply in the world. Aside from being digital, there are few similarities between Bitcoin and e-money. The incentives of Bitcoins are that the transactions are anonymous as accounts are not registered and Bitcoins are sent directly from one computer to another. There are concerns about whether hacking could compromise the bitcoin economy, such as Security Breaches, Criminal Uses, and volatility.