Features September 2017

All You Need to Know about Cryptocurrency


Written By: Michelle Bizet

Analogies, metaphors and fables as described by Edward Tufte are a type of thought mapping. The reasoning why these methods work so well, notes Tufte in his book “Beautiful Evidence,” is due to the fact that something has to be explained. A data visualization pioneer, Tuft is an author many instructional and graphic designers turn to for inspiration to explain complex concepts. Therefore, it stands to reason why, as organizational change agents, instructional designers often use analogies to transfer learning of the known to unknown.

You may have already heard of some of the most popular cryptocurrency networks, which include: Litecoin (LTC,) Monero (XMR) and Bitcoin (BTC).

Bitcoin was founded by Satoshi Nakamoto in 2009 and allows people and businesses to buy and sell using digital currency. Nakamoto introduced the network a few months after the collapse of the global banking sector.

“The root problem with conventional currency is all the trust that’s required to make it work,” Nakamoto explained in a 500-word essay he published in 2009. “The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.”

However, with virtual currency, Nakamoto said everything is based on crypto proof instead of trust. Cryptocurrency is based on cryptography or the art of writing and solving codes. As digital money is transferred via private computer networks, users must know how to solve encrypted digital ledgers to access money from a transaction.

To actually circulate Bitcoin, “mining” software must be used. This software is used to decode what are called “block chains,” which are essentially global, digital ledgers that keep log of every single transaction from start to finish.

BTC allows users to send and receive bitcoins anywhere at any time, doesn’t charge fees when receiving bitcoins and permits users to oversee their spending fees. These fees are not controlled by the amount of bitcoins being transferred, but by the speed at which a user can solve these encryptions.

Although, not everyone can mine bitcoin, so alternatively, bitcoin can be earned via the payment of any goods or services with bitcoins, buying bitcoins from a BTC exchange, or trading bitcoins with someone close to your location.

So unlike money transfers apps such as Venmo, BTC digitally exchanges money from user to user without bank involvement. For this reason, users don’t have to wait long for the transaction to process, and they don’t have to pay any taxes or interest.

One concern comes from Bitcoin working as a decentralized cryptocurrency network. While people may be wary of a decentralized system, that does not mean there isn’t a system of regulation. BTC is referred to as a “consensus network,” because while people are free to use a software of their preference, they all must agree to the same rules. Users who send bitcoins can protect their transactions with digital signatures. These are not to be confused with the digital certificates you sign when you purchase an item. These digital signatures are proof of authenticity that confirms that this transaction belongs to this user. This prevents fraud. Additionally, BTC protects users from identity theft because it does not ask them for personal information, and it protects their money through backup and encryption.

When it comes to answering the question about BTC’s legality, the answer depends on what users do with the money. Because BTC protects user identity, governments around the world are worried the network makes it easier for people to practice money laundering.

According to the Financial Crimes Enforcement Network (FinCEN), virtual currency transactions can be subject to regulation if a person is a money transmitter. This is when a person tries to create and sell virtual currency to another person for real money. If a person creates units of convertible virtual currency and uses it to purchase real or virtual goods and services, they will not be subject to regulation. However, this regulation comes into play if someone were to use virtual money and sell it to another person for real currency.

Regulations vary in each country, but in the United States, organizations like FinCEN, the US Commodity Futures Trading Commission and the US Securities and Exchange Commission are in charge of regulating BTC, BCH and other cryptocurrency networks.

The IRS regards digital currency the same way as property for US federal tax purposes, but regulations in the US also depend on the states. For instance, while California and New York are on top of looking for organizations to regulate BTC-related businesses, New Mexico, South Carolina and Montana don’t have any money transmitter laws. In Florida, there have already been cases of money laundering with virtual currency. A proposed law would list “virtual currency” as part of the state’s money-laundering statute, but it’s still undergoing approval.

In response to regulations, companies have created committees to encourage open conversations with regulators, the Bitcoin Foundation has started offering legal guidance and some companies have paused doing business with US customers until the issue is fixed.

BTC has become a very popular way of exchanging money worldwide. Individuals and businesses are using it to make money transfers and to participate in the stock market. While BTC is gaining popularity, there are still people unaware of BTC, and the software is still developing. Like anything, virtual currency has its certainties and its risks, but it poses a lot of problems and a lot of solutions. But in this digital age, this kind of financial innovation is inevitable.

 

MICHELLE BIZET is a senior in public relations with a concentration in business at the University of Florida. She loves working in the communications field and she is very passionate about the labor nonprofit organizations do. When she is not managing social media or studying for school, she can be found running The Swamp or cooking delicious and nutritious meals.

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