JKempnich - FINC 5380 - Final Research Paper

Digital Currency: Is it here to stay and if so in what form?
Jacob Kempnich
Sam Houston State University
7/20/2014

Digital Currency: Is it here to stay and if so in what form?
ABSTRACT
This research paper attempts to explore the rise of digital currency, the potential value, and
the likelihood of the role and form that it will take into the future. Three different digital
currency systems are examined within the contents of this paper, namely Bitcoin, Money 2.0
and Modern Monetary Theory (MMT) coupled with an exclusively used national digital
currency. The systems are examined and analyzed for positive and negative attributes in
relation to their potential use as a viable system. Potential Legal roadblocks are reviewed in
attempt to identify foreseeable conflicts with the use of the digital currency systems within
the context of U.S. Constitutional law. The research determined that the popular
decentralized digital currency model Bitcoin was the most controversial system examined of
the three due to its decentralized model and several of its attributes. Money 2.0 has
characteristics that may integrate well with the current system within the U.S. Modern
Monetary Theory (MMT) coupled with an exclusively used national digital currency has a
lesser degree of likely hood of adoption, at least within the U.S. as it proposes a rather
radical change which would substantially alter the current system distancing the banks role in
the creation of money.

Digital Currency: Is it here to stay and if so in what form? 1
Table of Contents
CHAPTER I.......................................................................................................................... 2
INTRODUCTION................................................................................................................. 2
Purpose of the Study 2
Background 2
Definitions 3
CHAPTER II ........................................................................................................................ 4
LITERATURE REVIEW ...................................................................................................... 4
CHAPTER III ....................................................................................................................... 7
TOPIC .................................................................................................................................. 7
Digital currency: Is it here to stay and if so in what form?7
Digital Currency Possibilities ........................................................................................ 7
Bitcoin....................................................................................................................... 7
Money 2.0................................................................................................................ 11
Modern Monetary Theory (MMT)............................................................................ 13
Potential Legal Roadblocks for Decentralized Virtual Currencies ................................ 15
The Stamp Payments Act ......................................................................................... 17
U.S. Monopoly on Currency .................................................................................... 19
Statistics 20
CHAPTER IV ..................................................................................................................... 22
CONCLUSION................................................................................................................... 22
References .......................................................................................................................... 25

CHAPTER I
INTRODUCTION
Purpose of the Study
This research paper will attempt to discover and examine the historical rise of digital
currency, first emerging in 2009 with Bitcoin. The relatively recent realization of transferring
value digitally through a secure decentralized domain has given way to a powerful movement
that facilitates privacy while simultaneously providing transaction transparency (the total
number of bitcoins in circulation, the number of transactions, the estimated number of new
bitcoins mined), reduces transaction time to seconds as opposed to minutes, hours or even
days, and lowers transaction costs thus enabling the use of micro-payments as a means of
generating new wealth.
Background
Much of this movement has been enabled by the growth of technology coupled with an
entrepreneurial vision of opportunity driven much in light of the banking crisis of 2008 that
led to one of the worst recessions (The Great Recession) in American history. The growth of
digital currency as a means of financial transaction has sent shock waves throughout the
banking industry. Many banks are now refusing to accommodate businesses and individuals
that even mention the term bitcoin. Since the rise of digital currency is currently in its

infancy, there are many uncertainties that remain in regards to whether this movement will
survive and if so in what form.
This paper intends to investigate the definition, demand, risks, and potential forms of
use of digital-currency within the domain of the United States.
Definitions
E-currency (aka Electronic-currency): ‘a type of currency in electronic form that is designed
especially for paying for goods and services bought on the internet: E-Currency allows the
purchase of internet goods and services at lightning speed and most importantly with a high
level of security’ (E-currency, 2014).
Digital Currency: ‘a form of digital cash bought from a particular company in order to pay
for goods and services on the internet: Digital clients and publishers should agree a
standardized digital currency (Digital Currency, 2014).
Crypto-currency: ‘A digital currency in which encryption techniques are used to regulate the
generation of units of currency and verify the transfer of funds, operating independently of a
central bank’ (Crypto-currency, 2014).

CHAPTER II
LITERATURE REVIEW
Andresen (2013) discusses the use of digital currency within the context of modern
monetary theory. The economic advantages from a macroeconomic perspective is discussed.
Advantages include the government’s ability to adjust interest as a means of curbing
inflationary pressures as well as stimulating the economy. The theoretical result is greater
economic stability coupled with lower transaction costs to name a few.
The article ‘California lawmakers nudge bitcoin further into the mainstream’
(Bobelian, 2014) describes California’s legalization of virtual currencies which positions
California to be on the forefront of what may promise to be the technology innovation since
the embracing of the world wide web.
Doguet (2013) gives a broad and well-rounded analysis of the historical and current
state of the digital currency phenomenon of Bitcoin. Doguet (2013) discusses the potential
gains of widespread use of the Bitcoin currency as well as the potential legal hurdles that lie
ahead.
The ‘U.S. Supreme Court LEGAL TENDER CASES, 110 U.S. 421’ (Juilliard v.
Greenman, 1884) is a report of the case between Juilliard and Greenman before the Supreme
court in 1884. This landmark case settled the issue as to the legal powers that the U.S.
Congress had within the United States in relation to paper currency.

Macintosh (2014) rationalizes the use of digital currency as a necessity in order for
the full potential of e-commerce to be unleashed. Macintosh (2014) also discusses the
possibilities and potential gains through the use of common electronic currency globally as a
means to accelerate and reach its potential e-commerce globally. Legal obstacles are
additionally discussed.
An applicable quotation from Albert Einstein (Mielach, April 18, 2012).
‘The Bitcoin Guide’ (Roy, 2011) is a manual that describes Bitcoin as an operating
virtual currency. Roy (2011) discusses items ranging from the nature of virtual currency,
how Bitcoin can be used for online transactions securely, to potential positive and negative
aspects of Bitcoin use. Several different methods to mine Bitcoins are also described.
The article ‘Supermoney: The new wealth beyond banks and bitcoin’ (Samson, May,
2014) describes how today's financial services appear efficient but are not. Samson (2014)
states that much of today’s financial internet transactions are really running on ‘pre-internet
rails.’ This is why transactions can take several days to complete. Samson (2014) discusses
Money 2.0 concepts and how Ripple lab’s open source protocol is working to create a so
called ‘value web’ which promises to improve transaction costs, increase speed of
transactions.
Tuttle (2014) discusses the rise of Bitcoin use as well as producing statistics that
cloud the forward visibility of its destination. The article ‘Making cents of bitcoin’ (Tuttle,
2014) describes the fact that some of Bitcoins most appealing characteristics are also flaws
that can lead to its demise. The fact that transactions are anonymous compels not only

libertarian types but also criminals. The fact that 4 of the G8 members including China,
Canada, France and Russia have all banned Bitcoin use within its borders delivers a strong
signal in terms of Bitcoins road ahead.

CHAPTER III
TOPIC
Digital currency: Is it here to stay and if so in what form?
Digital Currency Possibilities
Bitcoin
The rise of Bitcoin with its roll out in 2009 has brought forth attention from
regulatory agencies, banks, government officials, businesses and to a lesser degree the
public. Specialists from within the technology field have defined the bitcoin phenomena as a
”‘masterpiece of technology’—a work of genius on par with the Mona Lisa” (Doguet, 2013).
Bitcoin’s attractiveness is manifested at the nucleus of the intention and the ingenuity of its
model. Bitcoin was carefully crafted to utilize highly talented technical specialists from
around the world for contribution to enable a currency system and vehicle that exhibits
security, accountability and seamless transfer of value at low transaction cost across the web.
Doguet (2013) discusses the fact of that ultimately the requirement for third party
participants in financial transactions is eliminated with the Bitcoin system. The elimination
of the so called ‘middle man’ results in reduced costs that are multiplied up by sheer volume
of transactions. The result may potentially amount to hundreds of billions if not trillions in
savings to businesses and consumers annually.
Additional benefits discussed within the Doguet (2013) article extend to reduce
inflationary pressures as a capped amount of currency will be circulated as opposed to

artificial manipulation of currencies currently in practice around the globe. However, Doguet
(2013) states that the value of a Bitcoin varies in relation to the value of other currencies
which in a way makes it similar to a fiat currency. Doguet (2013) states that much of the
value of a currency is derived in a similar fashion to that of religion as its value are
predicated on faith. In the case of Bitcoin, most of the so called faith is establish through the
idea of greater stability as a result of having no entity other than security and accountability
as its pillars. Conversely, since Bitcoin is not influenced by government, corporations or
commodity, stability is based on the security of the system and thus is a variable that is of
unknown risk.
Roy (2011) describes Bitcoin as a relatively new currency which currently allows
users to purchase items online without the need for an intermediary entity (Banks, PayPal,
etc.). Digital peer-to-peer transactions take place between buyer and seller exclusively,
thereby reducing transaction costs from dollars to as little as a fraction of a penny.
Bitcoin is independent of any national relation. It is a decentralized global currency
for use around the world. This bypasses the need to convert the value of one currency for
another as part of an international transaction (Roy, 2011). The fact that Bitcoin is not
managed by a central entity or bank frees it from the fluctuations in value that national
currencies are vulnerable to as a result of economic performance at any point in time. In this
way Bitcoin exhibits a similarity to that of gold or silver. However, Bitcoin has experienced
a great deal of price volatility. Fluctuations in the value of the Bitcoin currency have been
attributed to broad speculative views based on many factors. Some of these factors may
pertain to the perceived viability in the short to mid-term of the currency, the degree of

security contained within the system, philosophical eagerness, and the potential for broad
acceptance. Bitcoin’s tumultuous value fluctuations may stand as an obstacle to growth in
that merchants find pricing goods and services problematic, thereby potentially dampening
further growth as new merchants may interpret this as a risk (Doguet, 2013).
Bitcoin’s exclusion of a middle entity for transactions serves to lean down the cost of
doing business. Roy (2011) states that ‘while it does cost money to exchange fiat currencies
to Bitcoins and vice versa, it doesn’t cost anything to accept them, making it a great way to
be paid online for goods or services.’
Roy (2011) discusses some of the negative aspects of bitcoin use such as the fact that
since no bank is involved, there is no interest bearing accounts which may make bitcoins
expensive in the sense of opportunity cost however when interest rates are low, the cost of
transaction fees may exceed the interest payment offered by banks. Additionally all
transactions involving bitcoins are final. There is no mechanism to reverse a transaction
involving bitcoins. This may be seen as a vulnerability to fraudulent transactions from a
buyer’s perspective. In other words there is no return policy for buyers so all transactions are
final. (Roy, 2011).
The use of bitcoins as a tool for payment transfer does not dictate to the small
business owner that he or she must keep all funds in bitcoin form, just enough to make online
transactions. Bitcoin currency exchanges are provided by several websites where individuals
may exchange there common currency for bitcoins and vice versa (Roy, 2011).

In relation to stability, although many experts feel that Bitcoin’s architecture are
somewhat protected from variables that currently drive national currency fluctuations,
Bitcoin is potentially susceptible to fluctuations of supply and demand. Furthermore, the
down side of a decentralized currency is manifested in the fact that there is no safety net for
Bitcoin in the event of a catastrophic event leaving unmitigated risk to substantial bitcoin
devaluation (Roy, 2011).
Tuttle (2014) raises the fact that Russia, China, France and Canada have all banned
the use of Bitcoin. National banking institutions within these nations have put forth notices
and cautions pertaining to the intrinsic risk associated with Bitcoin investments. The fact that
national banishment in the use of Bitcoin by 4 G-8 members shows great apprehension in
terms of perceived risk to both national and individual interests.
Tuttle (2014) states that 75% of United States citizens are unaware of Bitcoin, and of
the remaining 25%, 80% are unwilling to consider its use. Despite the stated statistics,
Bitcoin has experienced exponential growth in use of the digital currency and in its value
over the last 6 years.
Bitcoins trajectory thus far has been characterized with many bumps in the road.
Initially sponsored by individuals concerned with privacy coupled with apprehension of
government, Bitcoin was born adjoining to libertarian ideology. As the movement grew
traction and larger players envisioned Bitcoin’s growth would be predicated on broader
‘adoption among consumers, businesses, and the financial sector’ (Bobelian, 2014).

Considering the fact that Bitcoin is most like a fiat currency, adverse statements from
financial visionaries such as Alan Greenspan and Jamie Dimon led to declining confidence in
the stability of the digital currency. This coupled with large scale misunderstanding and
confusion about the currency in addition to views of its misuse as a tool for criminals has
impeded Bitcoin’s path to legitimacy.
Money 2.0
In the article ‘Supermoney: The New Wealth Beyond Banks and Bitcoin,’ Samson
(2014) argues that “‘21st
century money does not yet exist, except in seed form.’ ‘Money 2.0
goes way beyond Bitcoin, though, because it’s a whole new medium of exchange -- as
different from traditional money as email is from snail mail or instant online news is from
yesterday’s printed newspaper’” (Samson, May, 2014). Samson (2014) goes on to explain
that the so called ‘new money’ is currently in the process of being unleashed by the so called
‘value web’ whose foundation is predicated on an open source procedure similar to protocols
utilized in creating the information infrastructure of the internet. Samson (2014) highlights
the fact that although today’s banking transactions take place over the internet and move
monetary asset values, they are doing so in a manner that is still built on an old system. For
example although automatic payment systems are used, in many instances it still takes hours
and sometimes days to transfer money from one bank to another (Samson, 2014).
A new open source protocol is described to have been used to create a so called ‘value
web’ or ‘Money 2.0’ developed by Ripple labs according to Samson (2014). He states Ripple
labs as the solely ‘funded organization’ with the capacity to create, via open source protocol,

a so called ‘financial internet with equivalent power to the so called ‘information internet’
(Samson, 2014).
I see two potential big picture views. Samson (2014) may be right in at least the short
term, possibly long term too. After all, it is not unfathomably difficult to imagine a banking
type system were eventually large financial entities from around the globe utilize a virtual
currency with all or most of the proposed benefits mentioned to allocate loans, offer interest
bearing accounts and do most of the functions that today’s banks do. Transactions would be
faster and fees probably lower.
Samson (2014) brings contrast between the Ripple Labs model and the Bitcoins
model. Although the Bitcoin model seems to have greater global application where national
currency is cut out of the equation, the Ripple Labs model keeps much of the system the
same (e.g. current U.S. banking system) with the focus on replacing antiquated technology
keeping partly in line with a portion of the Bitcoin paradigm.
It seems that inevitably U.S. banks may very well evolve into the money 2.0 scenario
and that this would just be a technological progression as opposed to the more philosophical
paradigm shift that Bitcoin offers where banks are being left out of the equation altogether.
From a populist point of view, there are many who would favor the Bitcoin methodology
however in my opinion, realistically the money 2.0 scenario is more likely to become reality
in the long run.

Modern Monetary Theory (MMT)
Within the context of the article’ Improved macroeconomic control with electronic
money and modern monetary theory’ Andresen (2014) discusses the possibilities of
combining a digital currency with MMT.
In most MMT paradigms Central Banks are an arm of the government. Under an
MMT paradigm, in a nation that is issuing its own currency, as debt accrues through its
Central Bank as a result of deficit spending over and above income sources from bond sales
is viewed as an accounting settlement. Government spending creates new money (as opposed
to a credit based creation by banks as we in the U.S. have now) in debiting its account at the
Central Bank. The are no revenue constraints for a government under this scenario as it
cannot run short of ‘its own issued currency’ (Andresen, 2013). All debts can be paid so long
as the debt is in its own currency. The government’s use of taxes is then to drain money in
the event of an overheated economy (Andresen, 2013).
According to Andresen (2013), under this system although inflation may become an
issue, inflation may become an issue in any system if ‘nominal aggregate demand is near or
surpasses some capacity limit’ (Andresen, 2013). Andresen (2013) states taxation and other
techniques can be utilized to tame inflation within the MMT system.
Andersen (2013) argues that in the U.S. we have net creation of money as a result of
banks’ lending money that creates endogenous money growth which he explains is a function
of banks attempting to maximize profits. Andersen (2013) states that control of the money
supply is not possible under this regime. Andersen (2013) argues that therefore it is better to
have the government as the monopolistic creator of money; injecting it into the economy as

opposed to the banks’ lending it as a money creation mechanism. Under this total reserve
system, Anderson proposes that banks that wish to lend would have to borrow from the
governments injection capital at low rates and take their profits from the difference between
what they can get the money for verses what they can lend it for, however they should not be
able to create money as he believes that they are the main culprit of inflation under the
current system.
With the MMT system generally set up, Andersen (2013) goes on to explain what he
considers the main points of his paper in that for the 1st
instance in history, the control of
money velocity is highly feasible under an exclusively digital currency monetary system. In
times of economic slowdown or recession under the MMT system, currency (digital) could
be injected into the economy digitally via the Central Bank (Or National Depository; No
deposits in private banks under the MMT system) in the way of running higher deficits until
demand rises and thus the economy recovers. ‘This can be done with a fee (negative interest,
demurrage) on money held: M decreases slowly, v increases strongly and immediately,
therefore Y increases immediately’ (Andersen, 2013).
Andersen argues:
‘Demand in an economy is not decided by the aggregate money supply
(a stock), but by the aggregate of money flows Y, where Y is GDP. In a
continuous-time modeling framework, the denomination of Y is
[$/year], as opposed to M [$]. In nominal terms we have
Y (t) = M (t) v (t),
Where M is aggregate money stock and v is average money velocity’
(Andersen, 2013).

In times of economic inflation, despite popular resistance, a fee on transferring money
between accounts could be utilized thereby reducing velocity and slowing the economy down
rather quickly.
Andersen (2013) argues that money velocity may be more important that the quantity
of money itself in times of recession. He argues that it is the movement of money (velocity)
that is stagnant in times of recession and that is has behavioral characteristics. Additionally,
the draining of money during time of inflation can take a great deal of time.
Andersen (2013) states that with the exclusive use of electronic money the capacity to
alter the quantity of money within the system very quickly and with more accountability but
moreover the velocity of money which is much more difficult in a physical currency system.
Potential Legal Roadblocks for Decentralized Virtual Currencies
For some time law enforcement agencies from around the country and even the globe
have been distrustful in a currency that can be utilized as a tool to buy and sell illicit items
without trace of identity. Furthermore, the thought of how income can be traced and taxed
was among the many challenges ahead if Bitcoin were ever to succeed as a true alternative to
dollars.
Despite these suspicions and upon the notion of many that an outright ban of Bitcoin
was on the agenda, on March 13, 2013 FinCEN (Financial Crimes Enforcement Network) put
forth rules and procedures for virtual currencies that resemble those used for fiat currencies.
“FinCEN granted the currency legitimacy by incorporating it within current money

transmitter and anti-money laundering laws” (Bobelian, 2014) signaling a form of
acceptance.
A Further degree of digital currency legitimacy was signaled when the SEC and
additionally the IRS dispensed guidance policy, though the guidelines put forth complicate
using, exchanging and benefiting from digital currency use (Bobelian, 2014).
Additionally, the state of California passed a new law in June of 2014 allowing the
use of Bitcoin as a legal currency for use within the state. This decision however is likely to
be challenged by the federal government as the supreme court has historically rejected the
use of any currency other than the national currency for reason that have historically stated
that currency competition may threaten to devalue the dollar (Cook, 2014).
In the article ‘Bitcoins: Technological Innovation or Emerging Threat?’ Cook (2014)
reviews the history of U.S. currency law citing landmark Supreme Court cases and decisions
regarding alternative currency use, the constitutional interpretations and other various
reasoning that served as the foundation upon which those decisions were made. Cook (2014)
argues that since the Supreme Courts Legal Tender case decision of 1884, reaffirmation has
been the norm (Stare Decisis) of federal laws and court case decisions regarding the
necessity for the U.S. government to uphold an ‘exclusive monopoly over creation and
issuance of currency within its borders.’ Cook (2014) reasons that the current decentralized
virtual currencies (DVC’s), although unprecedented in their form, that U.S. law provides
policies that may be applied to dealing with the DVC’s in a similar way and for the same
intent as other physical currencies and that it is the intent that will lead to the demise of
Bitcoin. The fact that Bitcoin may serve as a competitive currency albeit no national

denomination, nevertheless will act in a way to reduce confidence in the U.S. dollar as would
a private currency and thus will not be exempt from the reasoning that has eliminated private
competitive currency use in the past.
The Stamp Payments Act
Cook’s (2014) research shows that whether DVCs be regulated or outlawed by the
U.S. is rooted much in the U.S. Constitution and several federal court decisions serving as
legal precedents that will more than likely serve as guidelines (Stare Decisis) to future court
decisions. The first of a series of acts and federal court decisions made pertaining to relevant
issues of currency that may lend themselves to arguments pertaining to the use of Bitcoins
within the U.S. occurred in 1862. The Stamp Payments Act, which was enacted into law
during the American Civil War served to eliminate competition among private and publicly
(United States) issued currency. The act pertained to currency values of less than one dollar
as at the time (wartime) the value of the metal itself that made up the coins was greater than
the face value of the coin itself due to inflation brought on by the war. The difference in the
value between the face value of the coin itself and the value of the metal caused hoarding of
coins and so private entities began to issue the own forms of currency in values of less than 1
dollar causing additionally inflationary pressures. Thus in order to maintain a monopoly on
currency to control inflation the Stamp Payments Act was passed into law.
The Stamp Payments Act states:
‘Whoever makes, issues, circulates, or pays out any note, check, memorandum, token, or
other obligation for a less sum than $1, intended to circulate as money or to be received or

used in lieu of lawful money of the United States, shall be fined under this title or imprisoned
not more than six months, or both’ (Macintosh, 2014).
The U.S. Supreme Court made a ruling on the Stamp Payments Act in the United
States v. Van Auken case (96 U.S. 366 (, 24 L.Ed. 852). In this case, Van Auken owner of a
furnace store was accused of issuing notes to persons that had value of fifty cents of
merchandise. This action violated the so called “less than one dollar” ban on private
currency. Based on the content of this case the Supreme Court used this as an opportunity to
clarify enforcement of the ban on private currencies. The Supreme Court characterized
currency as ‘any note or obligation in place of a dollar, for a sum less than a dollar’ (Cook,
2014). The Court also determined that a medium of exchange that was based in any other
metric (pints, bushel, etc.) was not deemed currency. Additionally, The Supreme Court put
forth two elements for applying the Stamp Act: 1)” ‘the token or note is for a sum less than
one dollar’; and 2) ‘it is intended to circulate as money or in lieu of the money of the United
States’ “(Cook, 2014).
Some feel that the Stamp Payments Act served to protect the U.S. economy from
excessive inflation at a time during war however its usefulness in the present day is
questionable. Some feel that it presently prohibiting innovation. Arguments contend that
based on the context upon which the Stamp Payments Act was created which was associated
with inflationary pressures due to the scarcity of silver and gold at the time of the American
Civil War, the Act is no longer applicable. The case is made that today’s internet commerce
demands for the use of an exchange medium that provides for micro-payment capability.
Macintosh (2014) argues that the Stamps Payment Act is outdated and thus obstructing a

valid demand for an exchange medium for micro-payments in the form of values less than
one dollar.
U.S. Monopoly on Currency
Upon the time of the writing and authorization of the U.S. Constitution, power had been
granted to Congress “to coin money, regulate the value thereof, and of foreign coin, and fix
the standard of weights and measures” (Cook, 2014). Additionally, Congress was granted the
power to penalize counterfeiters of U.S. coin which was the currency of the time. The
interpretation of these passages within the Constitution served as a foundational
authorization for the federal government to have exclusive control over the currency. This
meant that states and private entities were outside of the scope of U.S. Constitutional
authority to conduct currency producing activities (Cook, 2014).
In the 1884 U.S. Supreme court case of Julliard v, Greenman listened to and decided
on the question as to whether the Congress had the legal authority to issue paper notes as
currency and to whether Congress had the power to settle disputes related to legal tender
(Julliard v. Greenman, 1884). The Julliard v, Greenman case was final of 3 cases (together
called the legal tender cases) decided by the U.S. Supreme Court pertaining to the Federal
Government’s power to issue paper currency. The Supreme Court decision acknowledged the
right of Congress to borrow money from the U.S. public in the form of federal liability and to
thereby consequentially issue paper money as a symbol of federal requirement to recompense
the U.S. public (Cook, 2014).

It was further stipulated that paper currency could be used to fulfill nongovernmental
obligations as well by the public. Furthermore, the Supreme Court recommended that the
powers granted to the U.S. Congress went as far as to authorize the restriction of other
contending currencies. ‘Since the Legal Tender Case was decided, federal statutes and court
cases have reaffirmed the power of the U.S. government to maintain an exclusive monopoly
over creation and issuance of currency within its borders’ (Cook, 2014).
Use of this ruling has historically been forthright with regard to tangible currencies.
The current issue regarding digital currencies such as Bitcoin that has emerged out of
technical innovation that is not a so called physical currency, the same intent and rational for
restriction applies. The U.S. federal government sees competing currencies as a potential
threat to the faith and credibility of the U.S. currency which in a sense is representative of
the U.S. government as a whole. A loss in faith and or credibility in the U.S. dollar would
bring about instability in the U.S. economy and thus pose an imminent threat to the nation as
whole (Cook, 2014).
Statistics
› On Feb. 24, 2014 ‘Bitcoin lost almost 750,000 of customers' bitcoins and
approximately 100,000 of its own. This figure represents 7% of all bitcoins in
circulation, totaling more than $470 million’ (Tuttle, 2014).
› ‘75% of Americans are unfamiliar with Bitcoin’ (Tuttle, 2014).

› According to a recent survey conducted in January of 2014 by GfK Custom Research
North America’s OMNITEL unit, almost “80% would ‘never consider’ using an
alternative form of currency like the Bitcoin” (Vigna, 2014).
› Bitcoin total market capacity has reached approximately $10.4 billion (Tuttle, 2014).
› In March 2013, a single bitcoin was worth about $30. By December, those figures had
increased 3,900% to just over $1,200, and then plummeted to about $550 by the
beginning of March 2014 (Tuttle, 2014).
› The FBI already owns 5 to 10 percent of Bitcoins due to seizures for use in illegal
activities, which are now out of circulation (Coy, 2014).

CHAPTER IV
CONCLUSION
Within today’s economy, virtual currencies do exist in the form of credit cards, debit
cards, PayPal and several other instruments. These are tools used in representation of the
U.S. Dollar exclusively within the U.S. They exist within the centralized monopolistic
paradigm of U.S. currency. There are certainly many other technological innovations on the
horizon that will facilitate digital transfer of U.S. currency.
Although Bitcoin has risen to gain national and global attention over the 6 years of its
existence, there are many hurdles for it to ever become a major player as a currency for
several reasons. First, it is a decentralized currency. Most industrialized nations have well
established currencies that are well integrated within their monetary systems. Most monetary
systems are predicated on fiat currencies which must maintain confidence by the public
(users of the currency) in order for stability. A second currency in parallel with the national
currency could pose a threat in that a rise in its usage would potentially indicate a loss of
faith and confidence in the national currency thereby deflating the national currency’s value.
Additionally Bitcoin presents major issues in terms of the anonymity of its use which
makes it an opportunistic choice of currency for illegally activities. The anonymous nature of
Bitcoin additionally enables it as tool for entities to transfer dollar amounts in excess of
$10,000 which makes it a potential vehicle to violate U.S. the bulk cash smuggling statute.
Moreover Bitcoin has a high probability of violating the Stamp Payments Act which
prohibits currencies from facilitating exchanges in the amount of less than one dollar.

Additionally, as a result of the U.S. Supreme court decision in Julliard v. Greenman, in 1884,
the court has consistently ruled against competing currencies. Bitcoin may be in serious
violation of this Supreme Court interpretation.
Some of the technological innovations that have been come about through the
creation of Bitcoin may one day be utilized in the U.S. and potentially globally however this
does not necessarily mean that Bitcoin itself will be used and very doubtfully in a
decentralized fashion, at least in the near to mid-term.
Money 2.0 or a system of currency similar to it as described within the context of this
paper portrays a much greater likelihood of playing a role in a near to mid-range future U.S.
digitized currency system. Much of it is based on our current system with technological
enhancements making it politically more feasible in consideration of the current polarized
political landscape in the U.S.
Modern Monetary Theory (MMT) Calls for what may be considered drastic changes
to the way money is issued. MMT calls for government control in the issuance of new money
through a tightly aligned Central Bank. This type of radical change is hard to imagine in a
political atmosphere that is inherent within the U.S. over the last 2 decades. Although many
of the concepts seem to deserve more attention, the atmosphere within the nation currently
makes such changes highly unlikely.
I do believe however that more research is in need into the coupling of differing
systems with new digital currency paradigms such that alternatives may be clearly and
subjectively assessed. There is no doubt that the age of digital currency is upon us and that

many of the attributes of the technology will change the landscape in terms of how currency
will be used, monitored and managed. As with many of the recent and not so recent
technological breakthroughs that have brought about great magnitudes of benefits, so will the
age of digital currency. Over time it is possible that in addition to the benefits attained
through the use of digital currency, the realization of a new currency paradigm that will
resonate most effectively with digital currency will emerge lifting the economy and all of its
participants to a new heightened level of prosperity. For we must always remember that ‘we
cannot solve our problems with the same thinking we used when we created them’ (Mielach,
April 18, 2012).

References
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