Development of Different Virtual Currency Schemes like Bitcoin and Linden Dollars - Research Paper Example

1. The world economy is witnessing a growth in virtual money and is being continuously being used by all economies. Virtual currency is defined as a type of currency which is unregulated digital money which is controlled by the developers and is accepted among the members as a virtual currency and is used for the purpose of trading. This has led towards the development of different virtual currency schemes like Bitcoin & Linden Dollars. Bitcoin is the most successful and controversial virtual currency scheme which has been launched by the Japanese government which is similar to the scheme launched to BitTorrent and looks to work on the peer and peer network. Bitcoin is used as a currency which can be used for all purposes and competes with other currency like Euro & US Dollar (Virtual Currency, 2012). Bitcoin looks to create a database which has all the products and services which can be brought and helps to create an opportunity through which the business is able to gain efficiency and trade with each other. This scheme is being developed as a decentralized system which doesn’t have any central monetary system involved in the transactions. Since, creating virtual money through which use of Bitcoin system has helped in the creation of monetary value and has aided towards the GDP of the economy it is contributing positively towards the growth and opportunity which the economy provides. Further, virtual currency has no effect from the monetary policies which will thereby ensure that the creation of monetary value for the economy is dependent on the specific activity which is undertaken rather than on the monetary policies which have been drafted (Virtual Currency, 2012). The Bitcoin scheme will thereby help to generate revenues on a planned basis and will grow at a rate which is predictable and is shown below (Virtual Currency, 2012) The fact that the supply of money which will be created through the Bitcoin scheme won’t be affected by the issuance of money or printing extra money from the central authorities because the scheme looks to present the predicted flow of money. This will thereby help to reduce the impact of inflation which arises due to transaction which involves real money (Virtual Currency, 2012). The manner in which Bitcoin scheme is growing and if it starts to multiply exponentially then it will result in the appreciation of the currency and will thereby reduce the impact of inflation and ensure that the prices of goods and commodities reduces. Bitcoin scheme will bring a change in the monetary policy implications because the scheme functions as one where monetary implications are limited. Since, virtual currency has no effect from the monetary policies which will thereby ensure that the creation of monetary value for the economy is dependent on the specific activity which is undertaken rather than on the monetary policies which has been drafted. This will thereby increase additional pressure on monetary policies as drafting the policies which looks into different aspect through which the overall process of generating money can be strengthened will be required (Virtual Currency, 2012). Despite, the manner in which Bitcoin scheme has helped in the generation of virtual currency it is risky and presents certain problems. Firstly, Bitcoin scheme is immature and illiquid which thereby raises the risk as using the scheme could transform into a situation where the economy is further influenced towards using virtual currency and might create a situation where the actual growth rate is not highlighted. Secondly, Bitcoin is not a currency but a virtual currency and is not a currency which is linked to any country which thereby doesn’t provides the required links directly to an economy (Virtual Currency, 2012). This raises the risk and creates doubts regarding the manner in which the economy might perform in the future. Similarly a different scheme Linden Dollars is being functioning and looks towards the creation of virtual currency. Linden Dollars is a virtual currency which has been developed by Linden Research Inc and looks to develop different objects through which multi players can play online and create value. This provides an opportunity through which people are able to bring a change in their real life and provides an opportunity through which people can interact with other and take part in daily activities and provides an opportunity through which they can purchase the different things they require without any problems or obstacle from anyone. The development of Linden Dollars looks to work as a closed economy where people interact and purchase everything virtually (Virtual Currency, 2012). The process has their own agents and economic system which performs as a real world and provides an opportunity through which the person playing the virtual game can bring about the required transformation and ensures that they ate able to live a better life. This system looks to ensure that the different player which purchases Linden Dollars has to do it through Paypal or through credit cards. This ensures that real money gets involved as people have to look towards using it to ensure that they have the required virtual money through which they can entre into transactions and bring about the required changes they want in their lives. This increases the role of monetary value and the implications that the system has as it is pegged against the US Dollar to a certain extent (Virtual Currency, 2012). This process also helps in the generation of monetary value and adds towards the GDP of the economy. The Linden Dollars will thereby help to generate revenues on a planned basis and will grow at a rate which is predictable and is shown below The fact that the supply of money which will be created through the Linden Dollars will be affected by the issuance of money or printing extra money from the central authorities because the scheme is pegged with the US dollars and has an implication arising out of the different monetary policies which is being applied. This will thereby have to bear the impact of inflation which arises due to transaction involving real money. The manner in which Linden Dollars is growing and if it starts to multiply exponentially then it will result in the appreciation of the currency and will thereby reduce the impact of inflation and ensure that the prices of goods and commodities reduces. Despite, it the fact that real currency has given birth to virtual currency in this case the impact will have an impact on the economy and will be guided by the monetary policies which have been adopted (Virtual Currency, 2012). Linden Dollars will bring a change in the monetary policy implications because the scheme functions as one where monetary implications are high and changes in the monetary policies will have an impact on the overall performance and decision making. Since, virtual currency has effect from the monetary policies which will thereby ensure that the creation of monetary value for the economy is dependent on the specific activity which is undertaken and will be strengthened by the role of monetary policy implications (Virtual Currency, 2012). This will thereby increase additional pressure on monetary policies as drafting the policies which looks into different aspect through which the overall process of generating money can be strengthened will be required. Despite, the manner in which Linden Dollars has helped in the generation of virtual currency it is risky and presents certain problems. Firstly, Linden Dollars is immature and illiquid which thereby raises the risk as using the scheme could transform into a situation where the economy is further influenced towards using virtual currency and might create a situation where the actual growth rate is not highlighted. Secondly, Linden Dollars is a currency b which is linked to the US Dollar and thereby increases the risk as the fluctuation in the value of the currency will have a direct implication on the manner in which virtual currency affects the growth and prosperity of a region (Virtual Currency, 2012). 2. Linden Dollars is pegged to the US dollar to some extent so the fluctuations in the value of dollar will be reflected to a certain degree on Linden Dollars. This will require that the Linden Dollars is depreciated especially after the financial crisis so that it is provided a proper measurement aspects which looks towards strengthening the currency. The depreciation on Linden Dollars has to be accounted as depreciation would mean that the value of virtual currency decreases making goods and services to be expensive (Virtual Currency, 2012). This will require that the government looks to reduce the prices of goods and services to be matched by the money supply and allow the market to determine the equilibrium through which the overall efficiency will be measured. This will help in the creation of a system through which the virtual currency will be able to gain the required impetus and bring about the required transformation through which the overall efficiency within the system will be improved (Virtual Currency, 2012). This will help to ensure that the depreciation in the value of Linden Dollars is absorbed within the market and the virtual currency can be able to perform in a similar manner. Further, Linden Dollars which has been pegged against the US dollar has resulted in a change and transformation of the virtual currency. This provides the risk that the virtual currency has to deal with as at times it will result in an increase or depreciation of the currency. This will thereby have an impact on the manner in which the value of the currency is determined. Since, Linden Dollars performs and has their own economic policies so leaving it to the market to determine the rate of the currency will help to give it a presence like a real world market and will ensure that the different forces of the market determines the rate of the currency (Virtual Currency, 2012). Thus, using a market mechanism which helps to strengthen the overall style of working and develops the required mechanism through which the rate of depreciation is controlled and will help to ensure that the process helps to find out the actual value of Linden Dollars which should be applicable in the virtual market. References Virtual Currency. 2012. Virtual Currency Schemes. Eurpoean Central System. Retrieved on April 27, 2013 from http://www.ecb.int/pub/pdf/other/virtualcurrencyschemes201210en.pdf Read More