Bitcoin and Other Alternative Electronic Currencies - Research Paper Example

Technical Review on Bitcoin and Other Alternative Electronic Currencies Number: Lecturer: Owing to the changing aspects in the world such as evolving man, changing systems and environment shifting cultural contexts and practices among other aspects, technological innovations and changes are also happening. Applying the concepts of technology scanning, a new technology with potential to aid in the prevention of cyber security and threats is possible. Technology scanning takes four forms, scoping, searching, evaluating and recommending. It is after passing through these stages that a technology can sufficiently qualify to be used in advancing cyber security management and protection. This paper is a technical analysis of a new technology referred as Bitcoin. The paper seeks to discern how Bitcoin can support cyber security challenges already in place. At the very end, the paper will analyze potential loopholes for exploitation and misuse and give a way forward. Of late there has been a lot of buzz concerning electronic currencies and other virtual monies. According to (Kregel, 2010) there is great potential in shifting towards electronic funds or web cash. The web cash system is at the inception stage and given the level of activity accompanying it, it is expected to reach the maturity phase in a couple of years. JPMorgan has already submitted a patent which seems to set new stage for competition among the already well known players such as Bitcoin (Reardon, 2012). The patented technology referred as JPMorgan Chase, is a new paradigm that facilitate the creation of a new virtual cash accounts with real time digital exchange value. It works by exchanging real time digital exchange information without the involvement of third parties such as banks. The structural components of the system include a Payment Portal Processor or a digital wallet, an Internet Pay Anyone IPA account, a virtual private Lockbox, EFT network, a cash card and an Account Reporter (Reid, 2013). It works by exchanging digital information in a real time basis with capabilities to archive all the transactions in a personal digital wallet. With advanced built in security features involving crypto-currency models, transactions are safeguarded against vulnerabilities and attacks (Verme, 2013). According to the International Journal of Community Currency and Research, other electronic digital monies and crypto-currencies have emerged over time since the turn of the decade (Ryan, 2012). Infinitecoin hit the market in 2013 and though it offers an easy adjustment rate, it offers a broad spectrum. Quark coin launched almost the same time and considers security very seriously. It has extra rounds of encryption that employs six algorithms to provide maximum security possible. Others that were highlighted in the research include Megacoin, Novacoin, Litecoin, Namecoin, Peercoin, Primecoin and Feathercoin. Most of these crypto-currencies rely on peer-to-peer currency principle and their major consideration has to do with security and abuse. They update more frequently to eliminate vulnerabilities could result in abuse and security breaches (Kaye, 2014). The growth of internet has allowed the flourishing of electronic payment systems. As credit cards became uncommon because of associated security hitches such as theft and cloning, online payment systems emerged. As (Nozomi Kichiji, 2013) noted, transaction systems such as PayPal emerged that allowed micropayments to be processed in a faster manner. Paypal has dominated in this space because it allows its customers to transact through credit cards or bank transfers. A number of companies emerged with an alternative phenomenon where they created digital currencies that were convertible between electronic and existing currencies. However, it is notable that such companies such as Pecunix, Web-Money and GoldMoney have not thrived even after leveraging the power of internet. This has been attributed to factors such as competitive advantage, questionable legality and managerial incompetence. DigiCash, for instance, failed because users did not care entering credit card details online as well as the strong anonymity they promised. GoldMoney and Pecunix have their currencies denominated in gold rather a widely accepted one (Cohen, 2010). Users had problems accepting a rather unfamiliar currency with no option for familiar currency such as dollars. However, the challenge with these payment systems is that they charge substantial transaction costs than Bitcoin. Bitcoin emerges as the cheaper alternative and the additional aspects of security and privacy is what might make it a choice for some (Grinberg, 2012). With the current insecurity issues associated with other sources of payments such as card system, there is need for a paradigm shift towards other forms of payments. Alternative Electronic currencies are a solution to this menace since their security concepts are enhanced. Bitcoin, for instance, uses peer-to-peer networking as well as cryptography for its security. Other than this, the technology has other numerous features that make it an ideal currency for many businesses. For instance, it is highly liquid able, has low transaction fee and can be utilized in a wide range of transactions over the internet. In spite, the fact Bitcoin and other Alternative Electronic currencies have the capability to solving most of the security menace; it is liable for abuse and exploitation. First, Bitcoin and most of the alternative electronic currencies are not regulated by any legal institution or the US government (Reid, 2013). For that reason, it makes it an autonomous currency that can be exploited for money laundering purposes, child pornography trade and other criminal activities. The reason is that Bitcoin is a digital currency with no equivalent of the paper currency, only stored on electronic media and can be transferred over the internet alone. It is most probable that Bitcoins can be used by privacy and cryptographic enthusiasts and those against the government to conduct their operations. These may include drug traffickers, criminal and terrorists, child traffickers and other individuals whose course in society is unacceptable. Wikileaks accept donations in Bitcoins and though there is little consensus as to what their intent is against the government, some see it as damaging initiative while others term it as a worthy opponent to the government. Because of lack of a central control agency, Bitcoin may be difficult to control. This in itself is a major challenge as it means its infiltration may be beyond human control. It has the capability to destabilize markets and especially e-commerce (Cohen, 2010). The sustainability of Bitcoin and Alternative Electronic lies in the trust levels it enjoys. The question would arise as to who would trust them provided that they are not backed by any government or legal entity. However, the current indication is Bitcoin is trusted and would continue to be at a sufficient level enough to keep it in market. The proliferation of security incidences associated with conventional payment systems such as credit cards will see a paradigm shift towards electronic currencies. The fact that is supports a wide variety of currency with no restrictions is a plus for some privacy enthusiasts (North, 2014). References Cohen, B. J. (2010). Electronic money: new day or false dawn? Review of International Political Economy , 8(2), 197-225. Grinberg, R. (2012). Bitcoin: an innovative alternative digital currency. Kaye, J. V. (2014). CHImoney: financial interactions, digital cash, capital exchange and mobile money. In CHI14 Extended Abstracts on Human Factors in Computing Systems . ACM , 111-114. Kregel, J. (2010). An alternative perspective on global imbalances and international reserve currencies . Public policy brief//Jerome Levy Economics Institute of Bard College, (p. (No. 116)). North, P. (2014). Ten Square Miles Surrounded By Reality? Materialising Alternative Economies Using Local Currencies. . ACM , 46(1), 246-265. Nozomi Kichiji, M. N. (2013). A comparison in transaction efficiency between dispersive and concentrated money creation. International Journal of Community Currency Research . Reardon, D. C. (2012). U.S. Patent Application 13/681,729. Reid, F. &. (2013). An analysis of anonymity in the bitcoin system . Springer . Ryan, G. P. (2012). U.S. Patent Application 13/424,042. Verme, P. L. (2013). VIRTUAL CURRENCIES, MICROPAYMENTS AND THE PAYMENTS SYSTEMS: A CHALLENGE TO FIAT MONEY AND MONETARY POLICY? European Scientific Journal , 9(19). Read More