The paper 'Issues Surrounding Virtual Currency Schemes' is a great example of a Macro and Microeconomics Case Study. Bitcoin is a form of virtual currency scheme that was developed by Satoshi Nakamoto in 2008. Bitcoin (BTC) is a system that transfers cash electronically. Virtual firms do not have a central authority that regulates them. The mode of operation entails an open-source cryptographic protocol (Nakamoto 2011. p. 9). The transfer of money in this system purely relies on a digital mode and does not use an intermediary. Centralized financial institutions such as the national banks and central banks have a primary role in regulating the production, distribution, and use of the monetary items.
This is aimed at giving value to the currency. Virtual currencies do not have intermediate financial institutions in their chain, and therefore, they are unregulated. People in a virtual community only use the currencies. They only people who can control the system are the people who develop those (Amores, Paganini & Motta 2013. P. 14). To obtain the money, one has to either purchase it using real money or increase stock by taking part in stipulated activities that could include advertisements.
It is one thing to admit that the currency, though not readily accepted, is already in use in some parts of the world. The virtual currency interacts with the real money and real economy from two perspectives. One of them is that the financial institutions that regulate the real money, for instance, the central banks, have allowed the real money to be exchanged with the virtual currencies at the point of purchasing the virtual currency. The second level of interaction occurs when the virtual money is used to buy real goods.
Goods and services can only be traded using a legal tender (Schurman 2011. P. 23). This can be interpreted to mean that though the operation of virtual currency is still small, it has been legalized. It can be passed that its impact could have been assumed too small; no wonder it was licensed. However, questions are arising over the practical functionality of the virtual currency schemes. Several issues have been put forward questioning whether the system can be relied upon.
This paper analyses these issues and questions whether it is practical to incorporate such a system to be into the economy.
List of References
Amores, R, Paganini, P & Motta, G, 2013, Digital Virtual Currency and Bitcoin, Paganini pub. New York.
Caughey, M, 2012, Bitcoin, Step by Step, Kindle Publishers, New York.
Ju, S, 2012, Bitcoin and Virtual currencies, journal of virtual currencies. Retrieved from: http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf
Schurman, K, 2011, Bitcoin: Free Money or Fraud? Hyperink Bitcoin Mining Money Pub, New York.
Nakamoto, S, 2011, Bitcoin: A Peer-to-Peer Electronic Cash System, Prequel Books, New York.