Worldwide Use of Digital Currency (Essay Sample)

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E-Commerce: Worldwide Use of Digital Currency
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Introduction
Digital currency is a type of currency that is internet based and is distinct from another medium of exchange including coins and banknotes but has the properties of other physical currencies. The digital representation of value and can be traded digitally and functions as a medium of exchange, unit of currency account and store of currency value but lacks the status of a legal tender. However, it is a legal and valid mode of payment if it is to a creditor in any jurisdiction. It is also referred as virtual money or e-money since it is electronically transferred (Ali, Barrdear, Clews, & Southgate 2014). The existence of digital currency is because of the innovation in the system of payment in a new form of currency. In a lot of countries worldwide such as the UK, the use of notes and coins as money is gradually getting suppressed by the existence of electronic payments. The digital currency is today accepted as money and its use incorporate strict regulations that govern its creation that must follow a pre-determined path of an eventually fixed supply. The use of digital currencies has to undergo verification by the system or network undertaking the transaction.
Comparison of the different types of digital currencies
Digital currencies are divided into two types namely convertible and non-convertible. The convertible digital currency has got an equivalent value that is real and can be exchanged for real currency back-and-forth. A good example of a convertible digital currency is bitcoin (Yermack 2013). A non-convertible digital currency, on the other hand, has no ability to be exchanged for a fiat or real currency because it is intended specifically for a particular world or domain. An example of a non-convertible or closed digital currency is the Q coins. A non-convertible digital currency is transferable officially only in a particular digital environment and lacks the ability to be convertible. However, through a secondary black market or an unofficial entity, it is possible to exchange the non-convertible digital currency for another digital or a fiat currency.
The digital currency can further be subdivided into a centralized and a non-centralized digital currency. All the non-convertible digital currencies fall under the centralized currency division. However, the convertible digital currency may either be decentralized or centralized. Centralized digital currencies are those with a single administrator or administrating authority, for instance, a third party who is in charge of controlling the system. The administrator’s obligation is to issue currency redeem currency, establish rules and handles the maintenance of a central payment ledger.
On the other hand, the decentralized digital currency is a distributed one, open-source and math-based. They are also referred to as crypto-currencies that are peer-to-peer digital currencies that lack a centralized administrating authority. It also has no oversight or central monitoring for example Bitcoin, Ripple, and Litecoin. The decentralized convertible digital is math based and is protected by cryptography (HMRC 2014). It incorporates cryptography principles that guide the implementation of the decentralized, distributed, secure information economy. It mainly relies on private and public keys for the money transfer from an entity of individual to another. For the transfer to be complete, it must be cryptographically signed at the time the money is transferred.
Worldwide Use of Digital Currency
Estimation of the exact number of individuals who use or own digital currencies is difficult. The most widely used and largest scheme of digital currency globally is Bitcoin. As of July the year 2014, about 40 million addresses were enlisted on the block chain of Bitcoin (Gerdes & Nancy 2012). However, only 1.7 million had a balance exceeding 0.001 Bitcoins that is roughly 0.35 Euros. The figure still understates the exact number of users of the Bitcoins digital currency in the world. It is because each of the users may usually have varied numbers of wallets that may hold numerous addresses. In the month of May 2014, Bitcoin trading with other traditional currencies was almost 61% with the Chinese renminbi, 32% against the USA dollar and it traded at 3 the trading of the Bitcoin against the sterling pound stood at only against the Euro stood at only 1.2% (Gerdes & Nancy 2012). The figures suggest that about 20,000 people in the UK hold the bitcoin digital currency that is proportionate to the trading of the country with bitcoin currency. Further estimates show that only 300 transactions occur daily in the UK involving the Bitcoin digital currency.
The use of math-based, decentralized digital currencies and in particular Bitcoin has garnered growing attention in terms of its use in the world. Its worldwide use is popular because of its emerging use as the future system and mode of payment. Another reason for the growing demand for the utilization of these digital currencies is because it provides a powerful tool those terrorists, criminals and financiers utilize. Other transactions use digital currency accounts to store transactions that are illicit since the currency is out of reach of authorities and law enforcement agencies. Since the invention of World Wide Web, its use globally has been on a continued rise. Digital currencies and particularly Bitcoin has also been expanding its utilization in the world similar to the World Wide Web since it was an invention in that area. As a groundbreaking innovation, Bitcoin user has experienced unparalleled growth and development. Because of customer confidence loss in financial institutions after the 2008 financial crisis, many shifted to storing their funds in the form of digital currency (European Banking Authority 2014). However, the use of digital currency has been facing criticism and opposition since it is seen as a tool of unlawful and illegal activities and there have been called to have its operations regulated. Others hold the believe that Bitcoin as a digital currency is a temporary phenomenon that will eventually disappear thus making them cautious in its use.
Comparison among countries using Digital Currency
Ecuador has ventured into the use of digital currencies by ditching the utilization of the US dollar to try and revamp its monetary system. Its electronic money system was initiated in December 2014 where qualifying users were being allowed to set up digital currency accounts to enable monetary transactions. The country is the first to host an electronic payment system that is state run. As such the use of digital currency in Ecuador has been on a rapid growth in comparison to other countries because the initiative is headed by the government and has been recognized as a legal tender. In other countries such as Sweden, the utilization of digital currencies is also wide although it is not state sponsored. In Sweden, the growth in digital currency users is because of the government policies that do not permit for the revealing of financial records. As such, many foreigners hide vast sums of money that might have been illegally acquired in Swiss digital currency accounts.
Globally, the volume of Bitcoin transactions as of may 2014 amounted to an estimated value of USD 52 million in all countries in the world (Gerdes & Nancy 2012). In Switzerland, just like other countries such as the UK, the use of digital currencies is gaining ground. There exist about 65 traders in Switzerland who accepts the use of Bitcoin as a means of payment compared to the global figure of approximately 4266 traders who use Bitcoin to transact (Gerdes & Nancy 2012). The traders using the digital currency platform in Switzerland include florists, restaurants, hairdressers, hotels and providers of leisure activities among other shops. Bitcoin exchange machines have been installed in Zurich and Geneva so as to meet the rising demand for the use of the digital currency service.
In the US, the demand for the use of digital currency has also been on the rise because many businesses encourage the making of online payments which has promoted a cashless system of payment. In the month of May 2014, Bitcoin trading with other traditional currencies was almost 61% with the Chinese renminbi, 32% against the USA dollar and it traded at 3 the trading of the Bitcoin against the sterling pound stood at only against the Euro stood at only 1.2% (Gerdes & Nancy 2012).The figures suggest that about 20,000 people in the UK hold the bitcoin digital currency that is proportionate to the trading of the country with bitcoin currency.
Number of transactions per day and growth to date
The table below represents the summary statistics of the transactional data involving Bitcoin addresses.
Statistic

Value

Transactional data


1. Total number of transactions

48,214,583

2. Total Sending Addresses

46,551,354

3. Total Receiving Addresses

49,154,168

4. Mean of Sending Addresses

1.91

5. Mean of Receiving Addresses

2.70

Exchange data


6. Exchanges number

85

7. Currencies traded number

40

8. Total transactions

60,362,531

The values represent the estimates of the number of active Bitcoin addresses on a daily basis as well as the number of unique features from an empirical analysis by the beginning of 2014. The trend from the data shows that the number of daily users of di...