Digital Currency

1 Introduction
How much cash do you have in your wallet? Without even realizing it, digital currency has taken
over most transactions in the developed word. The retail e-commerce transaction in the US alone
was $227 billion in 2012 from $198 billion in 2011, a 14.7 percent jump (U.S. Census Bureau, 2).

What makes money valuable is that the person it is given to in exchange for something agrees that
the money they are receiving is worth the product that they are giving away. Therefore, what
makes money worth something is that people agree on its value.

2 Historical Background
When money was first created in the United States during the 19th century where the value of
money tagged to the price of gold. Throughout the years, the gold standard was regulated and
restricted to prevent the outflow of gold from the country. With inflation and the dwindling
amount of gold, the currency becomes determined by the market and is monitored by the
International Monetary Fund; the fiat currency, which is invertible money that is made legal tender
because the government says so (The Columbia Encyclopedia, 2013).
Digital currency was first created in 1918 with telegraphic transfer by the Federal Reserve Bank.
However, this practice did not gain traction until 1972 after the creation of the automated
clearinghouse (ACH) to process electronic transfers. The growth of digital money was accelerated
quickly by the creation of the internet which made it accessible for all. With the internet, came
creation of new types of digital money. Capstone encyclopedia of business states that for digital
currencies to be viable, there must be instant clearing of funds; there must be no payment risk;

transactions must be secure; and the currency must be widely accepted (2003). These
requirements would lead to the fall of many new digital currencies.
The advent of clearinghouses brought with it hefty fees and regulations. This led to the creation of
decentralized digital currencies or crypto-currencies such as Bitcoins, a currency generated over the
internet by an application called the Bitcoin miner and backed by average users like us. According
to Nakamoto (2008), a purely peer-to-peer version of electronic cash would allow online payments
to be sent directly from one party to another without going through a financial institution. Users
gain Bitcoins by solving a block of calculations and algorithms. The time required to solve each
block is automatically adjusted so that Bitcoins are produced at a predictable and limited rate.

3 Statistics
4 Laws or policies
5 Stakeholders
6 Debates and conflicts
7 Additional information

Work Cited
2012 E-stats. (2014, May 2). . Retrieved July 21, 2014, from
http://www.census.gov/econ/estats/2012_e-stats_report.pdf
Digital money. (2003). In Capstone encyclopedia of business. Retrieved from
http://ezproxy.greenriver.edu:2048/login?qurl=http%3A%2F%2Fezproxy.greenriver.edu%3A2341%2Fco
ntent%2Fentry%2Fcapstonebus%2Fdigital_money%2F0
Clark, C.(2011). Gold standard. In The American economy: A historical encyclopedia. Retrieved from
http://ezproxy.greenriver.edu:2048/login?qurl=http%3A%2F%2Fezproxy.greenriver.edu%3A2341%2Fco
ntent%2Fentry%2Fabcamerecon%2Fgold_standard%2F0
Fiat money. (2013). In The Columbia Encyclopedia. Retrieved from
http://ezproxy.greenriver.edu:2048/login?qurl=http%3A%2F%2Fezproxy.greenriver.edu%3A2341%2Fco
ntent%2Fentry%2Fcolumency%2Ffiat_money%2F0
Nakamoto, S. (n.d.). Bitcoin: A Peer-to-Peer Electronic Cash System. <i></i>. Retrieved July 21, 2014,
from https://bitcoin.org/bitcoin.pdf