According to Segendorf (2014), Bitcoin is a crypto-currency and encrypted payment system that has been developed for secret payments transacted entirely independently of financial institutions and governments with the bidirectional flow. In this context, virtual currency is a means of payment for use in transactions within a particular virtual community, for example, a specific website, or in a network of users with specialized software for managing the virtual currency and making payments (Segendorf, 2014). The virtual money has a distinct unit of account than national currencies and for Bitcoin; the unit of account is the Bitcoin itself. Bitcoin remittances can be made between people with the necessary software called a wallet. However, it is essential to understand that Bitcoin is not a digital note or coin but instead of funds in an account. Thus, when the payer pays via Bitcoin, the payment happens through debiting the senders account and crediting the recipients account. The payments are made by exchanging encrypted messages and are verified within the users network.
Since the foundation for Bitcoin payments is a new technical solution and function different from traditional payments, Bitcoin can bring advantages in certain payment situations. Payments in Bitcoin can be more cost-efficient than conventional payment, thus, involve savings and hence a more efficient payment system (Segendorf, 2014). Additionally, the payment is rapid and convenient since established financial structures do not hinder that if disrupted for some technical reason, the related transaction comes to a halt. Nevertheless, Bitcoin lacks any protection for users, which can be risky. Moreover, it is not regulated by any national legislation such as the Payment Services Act (Segendorf, 2014).
Bitcoin as an Ethical Dilemma
The ethics behind Bitcoin is intricate, and a significant issue is whether the currency will benefit society as its adoption increases. Unlike traditional currencies, various controversies surround Bitcoin. First, it is not pegged to a government-backed currency, which means that its value relative to any money is market driven. Similarly, Bitcoin avails a direct exchange of digital funds over the Internet for goods and services purchased. The result is a secure, anonymous, and decentralized electronic medium of exchange with little transaction fees. Furthermore, any transaction is untraceable, and in a world where almost every online purchase avails data that can be spied or stolen, online businesses find Bitcoin secure.
However, this is a potential way for money launderers to conduct business away from law enforcement agencies. Moreover, the lack of consolidated control makes Bitcoin appealing to people wishing to engage in illegal activity or dissident support entities. Also, the anonymity facilitates tax evasion by online businesses. Finally, Bitcoin does not offer an official dispute resolution authority. Unlike other digital platforms such as PayPal, Bitcoin eliminates the third party. Thus, if people make a mistake, no power can intervene. Also, it does not take any physical form, and it lacks valuation guarantee. Therefore, no one can warrant its minimum valuation, which leaves its customers unaware of the potential downfall in the cost of one Bitcoin.
To conclude, the developers of Bitcoin view it as a revolution of the global economy. Each user depends on the system, and the systems functioning depends on the users. Thus, the default risk depends on the users activities and not from the policy of any country. However, it poses an ethical dilemma as it poses various ethical issues such as how to tax it, the purchase of illegal products, and money laundering.
Segendorf, B. (2014). What is bitcoin. Sveriges Riksbank Economic Review, 2, 71-87.
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