Crypto-Currencies

In recent years, there has been much excitement surrounding crypto-currencies. These are purely digital mechanisms to represent money. They have no paper-based or real-world version. Transactions are recorded digitally. Crypto-currencies transcend international boundaries and jurisdictions.

The concept behind crypto-currencies is that they provide an anonymous means to hold and transfer money. They are designed in such a way to hide details of ownership and retain the anonymity of those involved in any transactions. Because of these design features, many governments, tax departments and law-enforcement agencies have declared crypto-currencies dangerous – they claim that criminals can easily take advantage of their anonymous properties and others can use them to avoid paying tax.

Crypto-currencies usually work by recording transactions in what is known as a ‘block chain’. This is a very large distributed data store that is effectively a ‘ledger’ or ‘record’ of transactions. This ledger is held on the many computers (known as ‘nodes’) that participate in supporting a particular block-chain. Individual transactions are added to the block-chain and are communicated between the nodes. Fundamentally, the block-chain is a data set and associated mathematical equations comprising algorithms that are used to validate the integrity of the data. Computers that participate in supporting a particular block-chain assist in processing the algorithms that check the data. Undertaking such activities reward those involved by awarding them an amount of the crypto-currency that the block-chain supports. This is known as ‘mining’, but without it, the given crypto-currency will stall as the transactions will go unverified and therefore be un-trusted.

Develop arguments for and against crypto-currencies. The considerations here are establishing frictionless financial transactions, anonymity, and the ability to transcend international boundaries, along with the link between crypto-currencies and crime (due to the anonymity of transactions) and the ability to evade local tax legislation. You may also wish to consider any limitations to the underlying technology.