Friday 28 June, 2013

Virtual Currencies – Will They Someday Replace Fiat Money?

Until recently, nobody much cared about virtual currencies except for gamer geeks and internet marketers. Virtual currencies simply weren’t widely used. But in recent years, they’ve begun to be traded on the global market and are now useful for buying a variety of goods.

In the year 2012, Bitcoins, the world’s most popular virtual currency to date, increased in value by 1,000 percent. Amazon has just launched its Amazon Coins and Facebook is getting into the game with its Credits.

These currencies might have been a blip on the internet radar, but recent economic problems in Europe have drawn the world’s attention to them. Many now believe virtual currencies may provide a more stable and viable option.

How Virtual Currency Is Different

There are several major differences between virtual and real currencies. Virtual currencies have never been needed to buy life’s necessities. They’re always been used for fun or investment, never to survive.

Currencies such as Bitcoins have no central authority. Unlike government-issued fiat money, they can’t be suddenly devalued. Bitcoins in particular has a system of mining algorithms that ensures new money is introduced slowly and steadily. This is why it’s so attractive, especially in light of the recent levy issued by banks in Cyprus and other government manipulation of world currencies.

One reason virtual currencies are starting to appear more viable is that more companies have begun accepting them for payment. Services like Bitpay help companies convert virtual currencies to dollars. New services such as this are popping up all the time.

The Problems with Virtual Currencies

In spite of what the advocates of virtual currencies say, they are not perfect. Tech glitches and limits on bandwidth could pose problems if a particular virtual currency takes off. As more users use a currency, this could affect its market value. Since no particular currency has yet become this widely used, it’s hard to predict what might happen.

There are already reports of crime involving virtual currency. In South Korea, where it’s widely used for gaming purposes, there are cyber-gangs that have set up scams and rackets to separate people from their virtual money. Thefts, heists and crimes have already been reported.

Some governments are looking for ways to regulate virtual currency. They see it as a threat on their mandated real-world currencies. There is talk in the United States of extending money laundering rules to virtual currency, which is a foot in the door toward regulation.

The Future of Money

A sudden fall in the value of Bitcoins in April 2013 has its advocates worried that it may not be as stable as they once thought. Virtual currencies may blow up in the coming years and turn into a new way to spend and save money. On the other hand, the bubble may burst and fiat currency may remain the order of the day. Only time will tell.

 

Bob Steele

Bob Steele is an entrepreneur, software developer, marketer, and author living in the Denver metropolitan area. He’s an avid outdoorsman who loves skiing, hiking, fishing, boating, and just plain having fun. His interests include games, space, technology, physics, cooking (well eating actually), economics, business, internationalism, and team sports. With over thirty years of professional consulting experience, Bob has been exposed to many diverse business models and has gained a sensible approach to life. Bob’s company, WaveCentric is focused on commerce, marketing, and entertainment related products.

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