The development of virtual currency

Foreword

In today’s world, the telecommunication technology, which is the basis of network marketing technology, develops faster and faster; at the same time, it also promotes the rapid development of network marketing. The Internet was born in the 1960 s, with the development of the network protocols and related hardware and software products, the Internet began to gradually shift from military to commercial and civil. Since the 1990 s, the Internet gradually enter into people’s daily life. The Internet is one of the important economic factors causing worldwide technological change. Such change triggered a new market, which is based on the virtual currency market space. The Internet facilitates communication of consumers, and at the same time provides a market to enterprises (Wikipedia). Virtual currency, at the beginning just a single application, now has developed into a wide variety and with complete functions of the monetary system. A typical application of virtual currency is the third-party payment platform, which mainly use network to engage in trade in goods, trade in services and intellectual property trade, and other business activities. After more than 10 years’ development, virtual currency already have most of the functions of traditional currency, and has its own characteristics, became a new kind of economic phenomenon. So what is the development of virtual currency in the future?

Risks of Virtual Currency

The rapid development of virtual currency also brings risks, which attract lots of attention. The virtual currency is the currency of the "network society" that imitate the methods of real currency, and is a computing unit used in the virtual world, not real money. Circulation of virtual currency may exposes risks on development of cyber economy and real currency (bitFly 2021).

Virtual currency has a variety of risks, including security risk, liquidity risk, bankruptcy risk and credit risk, the risk of the issuer is mainly manifested in the following aspects:

1. Virtual currency is just a kind of agreement so far, if the issuer cannot meet the needs of the consumers' repurchase, it will generate liquidity risk. The bigger issuing scale of virtual currency, the bigger risk occurred, and business activities of the virtual network advancement speeding up unceasingly more has a tendency to amplify the risk.

2. As a member of the society, virtual currency issuers also bear the social responsibility. The issuer should keep the business secrets and guarantee consumers have right to know of virtual currency at same time. In practice, it is difficult to balance both aspect, because it is difficult to find a good standard to judge what information can be disclosed and what information should be protected.

3. For issuer, hidden trouble mainly from three aspects, namely external attack, the failures of the system itself, and the internal sabotage.

The risks of the virtual currency owner are similar to those of the issuer, but mainly in:

1. In the virtual economy, virtual currency holders set up a virtual account or use in the process of the virtual currency will leave their information, once the account stolen, the virtual currency of holders will be lost, because of many accounts are using anonymous way, the lost virtual currency is unable to report to get back, which means the corresponding loss of monetary value.

2. Virtual currency is the product of virtual economy and information technology rapid development, the issuer is not only to face the risks from the system itself, but also facing the risk of the economy (Jiang Xuping, 2003).

Expectation on Virtual Currency

The online games involve large-scale virtual economy, the form is very simple, but with the development of the network, a certain scale of virtual economy system and their own characteristics have been formed. However, virtual currency financial system has not yet formed, the amount of exchange between virtual currency and real currency is small, and do not have virtual financial institutions. With the development of the network, the virtual financial system will be formed in the near future(Li Yusen 2015).

Here we do a detailed analysis about the possible development direction of virtual currency financial system.

1. It will appear virtual central bank, at present, the issue of virtual currency are very casual, network operators in order to pursue interests, according the user needs to issue, unlike the issue of legal tender that has a very strict specification. Every network operators are looked at this huge market, offering their own virtual currency, the virtual currency market is in the stage of fragmentation of a country by rivaling warlords so far.

2. It will appear virtual commercial banks, virtual financial institutions and virtual financial derivatives. The emergence of virtual central bank must bring a unified virtual currency, at present the two-way exchange between virtual currency and real money is still not fully open, also cannot borrow virtual currency. The emergence of virtual central bank can solve the two-way exchange between virtual currency and real money, and virtual commercial banks can be dedicated to the virtual currency borrowing.

Furthermore, once the systematic crisis take place in the virtual financial system, the government can control the virtual central banks to solve it through the real central bank, if virtual financial system is too marketization and liberalization, causing the development of virtual economy faster than real economy, more systematic problems that are difficult to solve may come about (Li Yu, 2003.08).

Reference List:


 * 1) bitFly 2021, Risks of Using Virtual Currency, bitFly USA, viewed 19 May 2021, 
 * 2) Li Yusen 2015, Virtual Currency: Analysis and Expectation, Scientific & Academic Publishing, viewed 20 May 2021,