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The Good and the Ugly about Cryptocurrencies

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There are debates on whether Bitcoin is a virtual currency or not. Regardless of these debates, what is interesting is that even virtual currency might mean different things across the other side of Atlantic:

  • According to the European Central Bank, virtual currencies are “a digital representation of value, not issued by a central bank which in some circumstances can be used as an alternative to money.”
  • According to the U.S. Treasury Department, virtual currency is “a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction.”

According to Bitcoin advocates, Bitcoin involves a decentralized peer-to-peer network on which several computers distributed throughout the world record and approve the operations performed. So, there is no need for any central bank to provide approval for its operations.

Also, the term “virtual” might be misleading in the case of Bitcoin as the arbitrary supply policy of central banks is even more ‘virtual.’ Bitcoin should be conceptualized like a digital version of a physical commodity.

According to a moralist, the use of Bitcoin can be approached from several different perspectives:

  • The value of something is specified by its “worth” so that similar to other goods, the latest price at the moment of the purchase at which Bitcoin can be sold should be determined by its ‘worth’. It would not be difficult to find out this price given the fact that today’s technologies make it possible to check it from anywhere with access to the Internet.
  • As long as a Bitcoin transaction is based on the specified price at the time of the exchange, and no fraud occurs, the exchange is just.
  • In case that a Ponzi scheme based on Bitcoin is created, the scheme and the fraud should be condemned, rather than Bitcoin.
  • To specify what would be lawful for something to be sold for more than its worth, one could look deeper into the reasons that might allow sales at any price.

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As Bitcoin producers rely on computing power due to their ‘mining’ activities cheap electricity plays a crucial role for them as well. Given the government intervention in today’s world, the price of electricity is often cheaper in countries where there is arbitration (in the case of China) or subsidization (in the case of Venezuela) on energy prices. In case of any negative environmental impact of energy overuse due to mining activities of Bitcoin, this should be seen as within the responsibility of subsidies and lack of property rights, rather than of Bitcoin per se.

On the other hand, governments have also a right to limit the use of Bitcoin such as in the case of China and India regarding the trade of cryptocurrencies which would also be legitimate.

Some moralists might claim that the price of a good is specified based “on its usefulness for the individual. Sellers and buyers might be aware of the implicit qualities of a thing being sold only to the extent that it is beneficial for individual use rather than having an in-depth knowledge of all its qualities. Individuals with a limited understanding of Bitcoin dynamics might see no no objective value underpinning use of Bitcoin, yet they can still find Bitcoin useful. Things that are scarce and useful rightly have a price.

When it comes to discussion about the potential of cryptocurrencies to be used for money laundering, blackmailing or other crimes, it should be kept in mind that Bitcoin is not the only currency used for such ends. All these illegal activities could be conducted with other conventional forms of currencies as well.

Given the new rise of cryptocurrencies, new research studies regarding the supply and demand factors for Bitcoin should be taken into account in order to make a complete moralistic evaluation of Bitcoin. Research regarding the limitations on the production of bitcoins might eventually enhance the understanding of its pricing dynamics as well.

Given these considerations, a moralist approach would tend towards approving the use of cryptocurrency, yet with the following added emphasis for buyers: “beware”.

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Ayse Kok
Ayse completed her masters and doctorate degrees at both University of Oxford (UK) and University of Cambridge (UK). She participated in various projects in partnership with international organizations such as UN, NATO, and the EU. She also served as an adjunct faculty member at Bosphorus University in her home town Turkey. Furthermore, she is the editor of several international journals, including those for Springer, Wiley and Elsevier Science. She attended various international conferences as a speaker and published over 100 articles in both peer-reviewed journals and academic books. Having published 3 books in the field of technology & policy, Ayse is a member of the IEEE Communications Society, member of the IEEE Technical Committee on Security & Privacy, member of the IEEE IoT Community and member of the IEEE Cybersecurity Community. She also acts as a policy analyst for Global Foundation for Cyber Studies and Research. Currently, she lives with her family in Silicon Valley where she worked as a researcher for companies like Facebook and Google.

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