virtual currency

virtual currency, a means of payment that is electronically created and stored, more specifically an unregulated electronic medium of exchange that operates like a currency but is created and controlled by computer software also called digital currency. Virtual currencies generally are not backed by a national government and are not considered legal tender (Ecuador introduced a government-controlled electronic currency in 2015). They range from those used by gamers in online multiplayer games to Bitcoin and other digital currencies that seek to replace or supplement existing legal tender as a medium of exchange. Bitcoin, launched in 2009, is an electronic currency that uses cryptographic software and a peer-to-peer computer network to generate the currency and record transactions in it because of this it is classed as a cryptocurrency. The best-known and most widely circulated virtual currency, Bitcoin allows its users to make online payments that are not subject to government or bank scrutiny, which has led law enforcement officials to express concerns over its potential or actual use in bypassing currency controls, in money laundering, and in financing terrorist or criminal activities. Unlike money stored in bank accounts or credit cards used to transactions, Bitcoin is subject to limited protections and regulations it is not governed or supervised by any central authority. Bitcoin has seen a slowly increasing acceptance by merchants as a means of payment, and in 2015 the establishment of a debit card that could be linked to a Bitcoin account allowed the virtual currency to be used to pay merchants who do not accept Bitcoin. Bitcoin also has been subject to speculation on exchanges where it is traded, which has led to significant fluctuations in its value at time and to an enormous spike in its value during 2013. Such volatility has led critics to question Bitcoin's utility and viability as a currency and regard it primarily as a speculative investment. Critics have also questioned its ability to act as a currency because there is a cap on the number of currency units that can be created using the software. Governments have generally not treated Bitcoin as a form of money but as property or a commodity some governments have sought to ban the use of it because of its potential for evading currency controls and government scrutiny. In 2014 Bitcoin software was revealed to have a computer bug that subjected it to attack by computer hackers and theft the bug led to the bankruptcy of the largest Bitcoin exchange at the time. Bitcoin can also be stolen through the theft of the private cryptographic keys used to identify ownership of the currency and through other means.

The Columbia Electronic Encyclopedia, 6th ed. Copyright © 2012, Columbia University Press. All rights reserved.

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