TO DATE, the total number of bitcoins in circulation globally is about 16.7 million, and with the recent market price of US$14,151 (RM57,472) per bitcoin, it has become the biggest international currency with market capitalisation exceeding US$200 billion.
Most of the foreign currencies in the country are managed by specific rules and regulations. Bitcoin is another foreign currency but it exists only in the digital world. It is known as digital currency, cryptocurrency, virtual money and virtual currency.
Cryptocurrency is similar to the US dollar or pound sterling, in that it’s a medium of exchange. Virtual currency is revolutionary as it’s not regulated by authorities such as central banks and the Federal Reserve. It’s a new way of trading online.
However, cryptocurrency has been created for the purpose of digital data exchange via a process that is enabled through cryptography.
Cryptography ensures that transactions are secure, as well as facilitates the creation of new virtual coins. Cryptography is the process of solving or writing codes.
Blockchain technology is used to manage transactions for the most popular form of cryptocurrency (bitcoin). This type of technology is decentralised. It involves a network of computers all over the world. Bitcoins are managed via the network, rather than being managed by a centralised authority.
Virtual currency offers good security. It is encrypted and is digital. This means there is no chance of getting ripped off as you might when using standard payment systems.
Also, since cryptocurrency applies the blockchain technology, it’s possible to buy property without the need for middlemen such as lawyers and brokers.
Another important advantage of cryptocurrency is that it’s accessible in all markets.
Bitcoin offers users the advantages of lower transaction costs, increased privacy and long-term protection of loss of purchasing power from inflation.
However, there are a number of disadvantages that could hinder its wider use. These include sizeable volatility in the price of bitcoins, insecurity due to theft and fraud, and a long-term deflationary bias that encourages the hoarding of bitcoins.
In terms of regulatory and legal concerns, virtual currency may make it easier to launder money. Also, how it is treated under laws for federal securities and how it impacts trading on foreign exchanges are key concerns. Whether you plan to use or trade it, it’s important to understand the legal issues related to cryptocurrency trade.
In Florida, the United States, the House Bill 1379 was passed into law in early May last year. The bill is designed to regulate the usage of virtual currency, with a view of stopping cryptocurrency-based money laundering.
The bill prohibits the use of cryptocurrency for laundering profits from criminal enterprises. Virtual currency has been added to the monetary instruments definition, via the Money Laundering Act in the state.
In countries like Japan, Australia and Canada, bitcoin is used as a method of payment.
In Germany, the government accepts bitcoin as private virtual currency.
In Malaysia, Bank Negara is working on guidelines related to the use of cryptocurrency.
State lawmakers and federal governments the world over are still coming to terms with cryptocurrency.
While laws and regulations are being developed, there is still confusion about the usage of cryptocurrency.
Dr Wan Mohd Hirwani Wan Hussain, Graduate School of Business, Universiti Kebangsaan Malaysia, Bangi, Selangor