Virtual Currency (Cryptocurrency) Schemes - Bitcoin, Ethereum, and Litecoin.

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The emergence of currencies as a means of exchange, which provide individuals with the opportunity to keep the value in a figurative manner, was adopted to diminish the batter trade system. Some of the most common units of currencies in the world are; U.S Dollars, Euro, and Japanese Yen among others. However, through the advancement of information technology, which relays on the use computers, many countries have developed other forms of exchange, such as Virtual Currency, which discourages the use of physical currencies. Through this form of payment, people execute transactions via mobile technology or through other banking services. The use of new technology is vital as it provides a quick and easy way of performing transactions. Moreover, the use of Virtual Currency is safe as compared to other forms of payment. On the other hand, it has some of its negative impacts, which may consider it inappropriate for carrying out transactions.

Creation of Virtual Currency (Cryptocurrency) Schemes

There are various reasons that surround the process of creating Virtual Currency Schemes. These inferences are crucial as they provide a clear implication on the creation and use of proposed schemes. Consequently, in the process of creating Virtual Currency Schemes, people involved should consider the purpose, which relates to the performance and the scheme to be used. Virtual Currency Schemes can be extricated into three types. The first type of scheme utilizes a bidirectional flow of operation. This is where subscribers are able to trade money in virtual form in accordance with the exchange rates (European Central Bank, 2012, p13). The second type of virtual currency uses an unidirectional flow. This is where trading of virtual currency is carried out using valid currency depending on the exchange rate provided. However, the transaction cannot be revised to its original currency.

Lastly, the third type of virtual currency is the closed scheme that requires users to pay for their subscription charges, which in turn assists them to gain virtual money through online transactions. In the process of creating virtual currency schemes, various issues must be considered in order to ensure that the scheme solves problems of the use of physical money during a transaction. Based on information of ‘Bitcoin’ and ‘Landen Dollars,’ various issues should be considered in order to facilitate the performance of the virtual currency operations. For instance, one of the issues is the technicality of the system that governs the transactions (European Central Bank, 2012, p.23). Use of physical money is practical and easy to use; therefore, in the process of introducing a virtual currency system, it is necessary for the organization involved in providing to proper guidance on how the system operates. This move will help their users to avoid some of the risks that may occur during transactions, such as sending money to other individuals who are not part of the transaction’s partners.

Virtual currency transaction is majorly controlled by internet services. Therefore, for the transaction of virtual currency to occur, the connection across the nodes must communicate appropriately (European Central Bank, 2012, p.23). Consequently, when designing any scheme of virtual currency, it is vital for an organization to consider the availability of prerequisite networking procedures in order to avoid unnecessary failures during transactions. This is achievable by ensuring all connections of the workstations are appropriate with proper communication mechanisms, through which an organization may consider the system operational. Another technical issue that surrounds the creation of virtual currency is security of information and money during a transaction. In a normal transaction where physical money is used, users face many challenges in regards to security. For instance, by carrying physical money, users can be involved in a theft scenario where they may end up losing all their money before a transaction.

Thus, when designing a virtual currency system, developers must ensure that all the security threats are covered. Therefore, basing on the fact that all the transactions via virtual currency schemes operates under the control of a networking system where threat to security of data is rampant; there is a need to come up with proper measures to avert such threats. For instance, Bitcoin organization provides a unique user identification to control their transactions (European Central Bank, 2012, p.23). Through such identifications, only users are in position of knowing such codes. Hence, they are advised to keep them secrete to avoid unnecessary insecurities that can be experienced during transactions.

Another key issue that surrounds the creation of virtual currency schemes is the decentralization system in accordance to the monetary policies. These are policies that control the operation and circulation of money, which is always under the watch of Central Bank of various countries. Therefore, before creation of any scheme, organizations must ensure that policies are taken into account, and all regulations that the policies operate on are respected (European Central Bank, 2012, p.24). However, in some countries that have developed virtual monetary system, for instance Bitcoins organization, such policies do not apply to their operations, hence; they are not under any control by the Central bank. On the other hand, other policies that determine the qualification for such organizations to be established must be met.

Implications on the use of Virtual Currency Schemes

1. To Organizations and Users

The development and use of virtual currency schemes both have positive and negative impacts to organizations as well as users. For instance, in its application, virtual currency schemes are advantageous to organizations because they provide the opportunity of operating without the intervention of Central Banks, especially where such policies do not apply (European Central Bank, 2012, p37). The system also allows organizations to provide timely services to their customers and the provision of a secure means of carrying out a transaction. Just like organizations providing these services, users also have innumerable advantages of using the available service through a virtual currency system. For example, through this service, users can opt to have the opportunity of performing their transaction without moving to the banking hall hence, time on saving. They also enjoy virtual monetary services as they are fast, secure and accurate.

On the contrary, there are other negative impacts of employing virtual services that organizations and users face. One of the problems for the organizations is the technically of the system (European Central Bank, 2012, p23). This is because; any system that operates virtual currency through a network connection is prone to a failure in communication among nodes of transmission that may results to faux pas of the transaction process. Therefore, communication can only be through a network, as opposed to currency transaction operation. In such failures, both users and organization are unable to perform transactions hence; it not auspicious for instant emergency transactions. Moreover, information that passes via the internet is prone to insecurity. Therefore, when not designed appropriately; the transaction process may face failures due to hacking, leading to lose of money by the subscribers.

2. To Central Banks

Virtual currency system of the transaction is also a powerful development for various Central Banks as they are involved in transactions that require the use of virtual scheme services. Therefore, the adoption of a virtual currency system by other banking institutions, organizations as well as Central Banks, results to both impacts to Central Banks. These impacts are realized through price, payment system, and financial stabilities (European Central Bank, 2012, p.33). One of the impacts of virtual currency system to Central Banks is that; it makes it arduous for them to preserve the units of accounts as one of the mandates of the Central Bank. Therefore, in the process of using virtual currency, there are certain controls that Central Banks may find difficult to interfere with as virtual currency does not operate under norms governing such principles. They are also unable to apply necessary monetary policies and their implementation because; virtual currency operates outside some of their policies.

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In case of challenges within the market infrastructure that may result to financial instability, it is the operation of Central Banks to ensure that there exist proper jurisdictions to avoid the risks of financial instabilities (European Central Bank, 2012, p.37). However, of virtual currencies that operate outside the principles of Central Banks, makes it difficult for the banks to control the operations of organizations using virtual currency systems. Hence, controlling financial stability risks that may arise would be impossible. Therefore, in order to overcome some of the negative impacts that are faced by Central Banks in their operations, there is a need for the implementation of laws that will seek to provide Central Banks with the authority to have control over the financial crisis of any nature.

How to Engineer Depreciation of Linden Dollar as a Governor of Central Bank

Depreciation, which refers to the reduction of the values of an asset due to the presence of certain hostile market conditions, is a process that an organization should take note of and be able to overcome immediately. Therefore, since this process may have a negative impact to an organization, the management should ensure that they study various trends of the market in order to locate causes of depreciation so as to come up with proper strategies of controlling situations. According to the information provided by European Central Bank (2012, p.30), Linden, one of the organizations that use virtual currency system as they mode of operation, experiences depreciation that may affect the organization in terms of its operations and development.  Consequently, as a governor of Linden organization, various measures must be adopted in order to avoid the occurrence of depreciation.

Although the organization has its own policies that control their operations, some of the protocols when put into practice may lead to the collapse of the organization. For instance, the permission granted to the organization through its policies that allow the organization to print their money without proper reasons, need to go through some amendments. Therefore, in order for the organization to be in the position of funding its debits, they should have a balance of borrowing and printing of money in mind considering the operations of the organization relays on virtual currencies, as opposed to real money (European Central Bank, 2012, p31).  Hence, to avoid losses by the organization and other users of the organization, the issue of money printing should be restrained. Moreover, the organization needs to learn on depending on borrowing from other financial institutions.

Although it is necessary to respond to technological advancements, it is also advisable to practice the gradual methods of applications as some of the activities that entirely depend on such technologies which may exhibit, faults. Thus, Linden organization that uses both physical and virtual currencies systems should ensure that they balance both transactions, so as to provide virtual currency system the opportunity to adapt to the averment (European Central Bank, 2012, p.31). This move will help the organization to avoid certain problems through the realization of depreciation in their services.

Conclusion

Virtual currency scheme, as a method of medium of exchange, is an indispensable means of conveying transactions that organizations should adopt. On the other hand, a good managerial system must exist within organizations for the realizations of the importance of virtual systems. Moreover, better policies to govern such operations should be enacted and followed to the latter by the organization.

Reference

 European Central Bank; ECB, 2012. Virtual Currency Scheme. Frankfurt: European Central Bank.