Reflecting upon our exploration of monetary and financial history in Essay

Reflecting upon our exploration of monetary and financial history in Topic Two, what are some of the issues surrounding the crea - Essay Example These currencies resemble real money and do come with their discrete, but open retail payment system; leading to the term virtual currency scheme. There are different types of virtual currency schemes; Type 1 (closed virtual currency scheme), it is used in online games; Type 2 (unidirectional flow), this is usually an inflow, this means that they have a conversion rate for buying the virtual currency that aid not only in purchasing the virtual goods and services, but also the real goods and services; Type 3 (bidirectional flow), this gives the currency the ability to behave like any other convertible currency, that is, possess the buying and selling exchange rate, and therefore, it can be used to buy both the virtual and real goods and services. Issues Surrounding Virtual Currency Schemes (Bitcoin and Linden Dollar) The Bitcoin is a virtual currency scheme that is based on the technology of BitTorrent of sharing files over the Internet (European Central Bank, 2012). This technology i s based on peer-to-peer network. Its operation is global and has the ability to conduct both real and virtual transaction of goods and services. The exchange rate of Bitcoins which is not nailed to any real-world currency is determined by demand and supply in the market (King, 2012). Due to all these, the currency is decentralized, meaning that it has no central clearing house; it is anonymous and controlled by the partners involved, this means that there is no institution or financial house involved in the transaction (European Central Bank, 2012). By anonymous, it means that accounts are not registered, so the Bitcoins are transferred directly from one machine to another. The transactions are enabled by free and open-source software that is downloaded and installed in a machine; thereby, purchased Bitcoins are stored in the machine in a digital wallet. This turns to be the basic threat to this system, users can easily lose their money if they do not implement and secure their mach ines with back-ups and antivirus measures. Although the insecurity factor is a big concern, users still prefer to use this technology because of its fast and cheap transactions with no bank account fees involved (European Central Bank, 2012). Because this system has no rules, its economic foundation has been interfered with governments and other agencies through criticism of the current fiat money system. Users of Bitcoin generally share common ideas which help to maintain Bitcoin within operation range, these include; the scheme is inspired and promoted by former gold standards, users also think that it is a starting point to end the central bank monopoly in the issuance of money, lastly the user criticize the fractional-reserve banking system. All these ideas have led to a number of issues; first, the economists criticize the Bitcoin and argue that Bitcoins are bits stored in a computer; therefore, they have no intrinsic value like gold. The other reason is that this technology fa ils to satisfy the Misean Regression Theorem (European Central Bank, 2012). Another issue about the Bitcoins is that the system is complex and not easily understandable, creating questionable doubts on the system, considering that the transactions are sent through a network minus an intermediary to maintain and validate the connection. This can lead to double spending or coin forge even with tough measures like time stamp and mining are deployed to