A few commodities in the 21st century remain rooted in past developments; however, many have progressed to a point of adaptability

with the technological boom of the 1980s throughout 2013. Smart devices, touch-pads, even cars that drive themselves are all becoming part of the global network. Currency has long remained static and tangible. Until the use of credit cards, money was known to be of physical and tangible presence. Currently, this view is rapidly changing with the increasing popularity of virtual currency, or infamously referred to as BitCoin. According to CNN money, BitCoin was created in 2009 by an individual under the name of Satoshi Nakamoto with the sole purpose of eliminating the middleman i.e. banks. Financial institutions charge a fee for currency transfer, storage, payments, and any other transaction involving money. BitCoin has no transaction fees and even lack the necessity of identification by your real name (CNN, 2013). Before discussing the significance, implications, and regulation of BitCoin, let us review its process. Initially, people would compete in mining for coins, which is through the process of solving math puzzles. Each solution is worth 25 Bitcoins that are stored in a digital wallet. The wallet is a considered to be a virtual bank account and may be stored on remote servers i.e. cloud computing, or on a PC. The vulnerabilities are great and risks of hacking wallets, or accidental delete is not uncommon. Thus, each individual will have to protect their virtual currency by taking the necessary precautions through antivirus software, and redundant storage. BitCoins are recorded in public logs, but under aliases, and maybe transferred to other users through a digitally signed transfer. The

software itself is open-source software, and every record is public information (WeUseCoins, 2013). While many users mine coins for value as they can be used to make online purchases, and are increasingly being accepted by merchants, some users invest in BitCoins with the speculation of increases in value. BitCoins can be exchanged to government-backed currency such as US dollars or Euros. Much like the way a currency exchange would operate; BitCoins serve as a breeding ground for volatility and price jumps with large profits to be made. While the intention of BitCoins is liberation from middleman fees, users have found ways to multiply its purpose. Since anonymity is a characteristic of this virtual currency, they have been used to purchase drugs online, and other illicit activities. Moreover, there have been concerns about money laundering activities and grand theft. From a financial and economic standpoint, virtual currency has a number of advantages. First, the way they are harvested through mining creates an incentive to harvest more coins, and thus a larger monetary base is available. The math problems increase in complexity relative to the total size of available BitCoins in an effort to control for inflation. Another incentive for the use of BitCoins includes the elimination of fees due to exchange. Fees, which are considered as dead weight loss, are alleviated as virtual currencies use peer to peer transactions? Merchants have an incentive to accept virtual currency as they represent a 2 to 3 % savings to normal mediums of payments. Yet with its many advantages, BitCoins create a hoarding incentive as noted

by Paul Krugman, a renowned economist. In addition, Krugman notes that its value is based on the expectation of being accepted or used as an intermediary investment source (Krugman, 2011). The lack of consensus by economists and financial professionals on the implications of Bitcoins is fueled by the uncertainty surrounding its future. Some believe it is a positive step towards a virtual currency creation, others like Krugman believe it is not comparable to monetary mediums such as currency. For the most part, professionals have adopted a wait and see approach with regards to their opinion about Bitcoin and its future. Whatever the economic implications may be, virtual currency has yet to be regulated by a governing body. A number of characteristics make it a dangerous method of payment. Despite the transactions available through public records, the hidden identity of its users prompts concerns. On November 18, 2013 the US senate held a meeting to discuss the implications of virtual currencies. Senator Tom Carper headed the meeting in an effort to involve government in virtual currency understanding, and subsequent implications. Expert opinion was taken into consideration, and the general feel is positive towards virtual currencies. Peter Kadzik noted that BitCoin is a legal means of exchange and those online payment systems, both centralized and decentralized, offer legitimate financial services. Yet, the Justice department presented criminal cases where BitCoin was used to carry out illegal purchases such as drugs, online gambling, and child pornography. Silk

Road, an online drug marketplace, is estimated to have between 4.5% and 9% of all available BitCoins spent for drug purchase. In addition, online gun dealers have used BitCoin to make sales with proper procedures such as background checks (BBC News, 2013). BitCoin value has reached an exchange rate of roughly $900 since the US Senate Meeting in November of 2013, and is currently trading at $796.5, based on Preev.com exchange rate calculation. Thus far, the Financial Crimes Enforcement Network (FinCEN) is the only U.S. federal regulator to have established official guidance of Bitcoin use. Katten Muchin Rosenman, attorneys at law noted that: In March 2013, FinCEN published interpretive guidance clarifying the application of the Bank Secrecy Act and the USA PATRIOT Act to Bitcoin and other convertible digital assets by stating that any administrator or exchanger of bitcoins (or other convertible digital asset) must be a registered MSB under FinCENs money transmitter regulations. In an attempt to monitor BitCoin, MSBs (Money Services Businesses) must register under FinCEN; however, mining is not only done through MSB, as individual miners may tackle the great Bitcoin search. In addition, there are pools of miners that are structured to share the load of mining as it uses vast amounts of computer power and remain anonymous. Other government bodies attempt to regulate BitCoin by embracing its presence, and trying to monitor it, for the time being. The German Finance Ministry classified Bitcoin as private money and may be subject to taxes if held for more than one year (Vaishampayan, 2013). In a similar

attempt the US Internal Revenue Service (IRS) has announced attempts to create rules for taxing BitCoins. Given the complexity of tracing cyber activity and transactions, the governments are unable to keep up with the pace of technological developments and regulations. The clash of technological development and legislative creation has left many regulatory bodies in the wait and see state. However, Bitcoins are rapidly gaining interest by many entities, especially since the U.S. Senate hearing exhibited acceptance for digital currency. Merchants enjoy the incentives of paying fees on transactions, which are then passed to their customers in the form of lower prices. However, the volatility of Bitcoin exchange value keeps at valid as an asset, but is long from being a stable currency. Whether Bitcoins are the future of currency, or a revived tulip mania as in the 17th century Netherlands, they have certainly created a controversial stance on currency and mediums of exchange. Although governments and regulators are working hard to try to maintain, control, and monitor illegal activities through Bitcoins, it is proving an increasingly demanding task. Its creation may have sprung from a libertarian attempt of a government-free currency exchange that is determined and controlled by market dynamics, it will surely be covered under regulation soon; thus, defeating the purpose of its creation, but contributing to the emergence of a global currency.

References BBC News.com. 2013. Legitimate Bitcoin value soars after Senate Hearing. Retrieved from http://www.bbc.co.uk/news/technology-24986264

CNN Money. 2013. What is BitCoin. Retrieved from http://money.cnn.com/infographic/technology/what-is-bitcoin/

Krugman, P. 2011. Golden Cyberfetters. New York Times. Retrieved from http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfetters/ Katten. 2013. Bitcoin: Current US Regulatory Developments. Retrieved from http://www.kattenlaw.com/36677

Preev.com. 2013. BitCoin to USD Exchange Rate. Retrieved from http://preev.com/ WeUseCoins.com. 2013. Your portal into the world of BitCoin. Retrieved from https://www.weusecoins.com/en/

Vaishampayan, S. 2013. Bitcoins are Private Money in Germany. Retrieved from http://www.webcitation.org/6JJIqfMJn