September 13, 2016 - It is amazing to see how far humans have come from simple bartering and trading systems, to where we are currently, where money is more of an agreed upon virtual concept than something tangible which can be taken out of your wallet.
Bitcoin, the leading digital asset and payment system, is a fantastic example of this. It works like this: you purchase credits (aka Bitcoins) with real money, then use these credits to buy products. With bitcoins you can buy flowers for the special someone in your life from 1-800flowers.com, and even a plane ticket to California from Expedia.com. This user-friendly, peer-to-peer payment system is known as cryptocurrency.
As a newbie to the virtual currency world, it can be hard to wrap your brain around the idea of money that is not really money, at least in the traditional sense. To put it in perspective, bitcoins is to the online economy, as Poké Coins are to the highly popular Pokémon Go app.
For those of you who are unfamiliar, Pokémon Go is basically an exercise app that juxtapositions your real location via GPS with virtual monsters (Pokémon). Many Pokémon Go users, not wanting to miss out on a rare Pokémon (particularly the elusive Pikachu), spend real cash to purchase digital money, which is non-redeemable outside the game. This digital money, fondly called Poke Coins, can be used to buy in game items. Bitcoins work much the same way: you trade dollars for cyber money.
Many startup companies have emerged to capitalize on the valuable opportunities digital currency presents. Digital currency, also known as cryptocurrency, is still a fairly new concept. As a result, there are conflicting views on how this payment system should be regulated.
In the United States digital currency is regulated on a state level. This creates a complex situation. According to Bitcoin Magazine, the choice to regulate on a state-by-state level can create an unclear regulatory framework for digital currencies. If you are in states like California or New Jersey, as a digital currency startup, you are in the clear. However, if you are operating out of Connecticut or New York in order to legally operate, you will need to secure a license, which can be a costly and time-consuming process.
One major concern consumers have is the high risk nature of digital currency and the lack of regulation. As a consumer, you stand to gain a lot of monetary value from this venture, but as an investor there are no guarantees. Some players within the virtual financial world are seeking to add security to their investments by purchasing gold via bitcoins. Bitcoin technology makes it easier and more affordable to purchase gold, and gold adds a certain level of stability Bitcoin tends to lack.
Outside the United States, many countries favor a more regulated approach. In May 2016, Japan’s national legislature approved a bill to regulate domestic digital currency exchanges. Moving forward virtual currency exchange operators will be required to register with the Financial Services Agency. This will implement on-site inspections and administrative orders.
Japan, The United Kingdom, South Korea, Singapore, Germany, and Switzerland are all on the same page, and working in tandem to protect the integrity of this new wave of the financial technology revolution. These countries have created a friendly network for fintech startups to discuss growing technology and market trends.
Whether you are personally invested cryptocurrencies on a business level or a gaming level, it will be interesting to see how regulations grow to match the strives technology makes in the financial sphere. Will the United States be inspired by the models its international counterparts use, or continue to forge its solutions on a state-by-state basis?
by: Madelyn Fagan
Jiji. “Diet oks bill to regulate virtual currency exchanges.” The Japan Times. 25 May 2016. Web. 23 August 2016.
Pepijn, Daan. “Gold rush 2.0: is gold the missing Link in Bitcoin’s economy.” Business.com . 4 December 2016. Web. 23 August 2016.
Young, Joseph. “Without unified, federal regulations for digital currencies, the U.S. risks falling behind.” Bitcoin Magazine. 1 August 2016. Web. 23 August 2016.