This paper will explore the recent development of digital (aka virtual or crypto-) currencies—currencies which are creatures of the Internet, have no issuing or governing body, are self-authenticating, and can be used worldwide by members of the general public to engage in the same types of direct, one-to-one transactions that daily occur using government-issued currencies. The most developed digital currency, Bitcoin, will be considered as a proxy for the general phenomenon. Bitcoin began with a paper published anonymously in 2008 that outlined how to create a digital currency which could be exchanged on a "peer-to-peer" basis, but would not be susceptible to unauthorized duplication. The first Bitcoins were "minted" in 2009 using an open-source program which constrains how many coins can be created and at what intervals (currently 25 every ten minutes, but the number drops by half approximately every four years, with a total cap of 21 million). As of this writing, one Bitcoin is trading for about $635 (€465). Since approximately 12.4 million coins have been minted, the value of the total supply is roughly $7.8 billion (compared to the roughly 10 trillion US dollars in circulation). Bitcoin has some advantages over other mediums of exchange. For example, merchants may prefer payment in Bitcoin because there is little or no transaction fee, in contrast to the 2-3% fee on most credit card transactions. Fees are imposed on exchanges of Bitcoin into or out of a specific national currency, which would be true for any foreign-exchange transaction; but the global nature of Bitcoin would make such exchanges less necessary as acceptance increases. Outside of China, government response to Bitcoin has thus far been guardedly favorable: Germany has recognized it as a "unit of account" and the former Chairman of the U.S. Federal Reserve, Ben Bernanke, stated that virtual currencies "may hold long-term promise." Not surprisingly, however, as its circulation increases, so do the number of practical and legal issues surrounding it, the most important of which will be explored in this paper.
N. Neslund, “A Bit About Bitcoin,” in Sinteza 2014 - Impact of the Internet on Business Activities in Serbia and Worldwide, Belgrade, Singidunum University, Serbia, 2014, pp. 1-7. doi:10.15308/sinteza-2014-1-7
Neslund, N. (2014). A Bit About Bitcoin. Paper presented at Sinteza 2014 - Impact of the Internet on Business Activities in Serbia and Worldwide. doi:10.15308/sinteza-2014-1-7