Cause_and_Effects_of_Digital_currency.docx

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Running head: Cause and Effects of Advanced Technology in Digital Currency
Cause and Effects of Advanced Technology in Digital Currency
Bayanmunkh Gantogtokh
Tokyo International University

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Abstract
This research is about digital currency and their effects on some fields. The main
purpose of this research is to know about what effect our society caused by advanced
technology in digital currency. I found 18 sources from academic sources and non-
academic and i found 3 main effects on our society. Upon the causes of advanced
technology in digital currency, this research explores how new successful digital
currency changes monetary system and its new technology is how powerful in positive
and negative ways. The interesting facts, historical stories are mentioned in order to
support my arguments and provide insight to further understanding of the extent of
implications on digital currency growth in general.
The advancement in technology has caused the growth in digital currency which has an effect
on illegal activities, fiat currency and economy.
“What do Lamborghinis, drug dealers, pirates, hackers, the Winklevoss
twins, the FBI, and Congress have in common.” (Lee, Bedi, Tsang, Harms, & Bakshi, 2016).
Since science and technology was invented, people’s lives changed a lot. The advanced
technologies have not been only for communication but also for a whole monetary system. In
the era of digital age, digital technology more and more appeared in society, and affects
human lives in positive and negative ways. Chaum (1982) stated that David Chaum invented
the first digital currency and then started the evolution of currency. The first successful
currency appeared in society, it affected three different sides. First, digital currency
supporting illegal activity, including terrorism operation and drug dealer. Second, lower
transaction fees and a growing economy are effects of digital currency in the economy. Third,
digital currency replacing fiat currency. This research found that digital currencies are

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affected in positive and negative ways. However, digital currencies are involved in illegal
activity, it helps to grow the economy and reduce transaction fees.
Background
General background: Technological advances
In 1983, David Chaum found an idea of first digital currency (Chaum, 1982). Seven
years later, he found a company called DigiCash which is an electronic payment company.
Technology of DigiCash company required specific software from customers to transact their
money. The software works based on advancement cryptography technology which accepts
electronic payment. The most interesting fact of digital currency is unfindable withdraw from
the banks, governments and third parties. This means governments or other types of
authorities can not control customer’s transaction due to the advancement cryptographical
technology. Unfortunately, David Chaum’s aim was failed and DigiCash electronic payment
company declared their bankrupt (Chaum, 1982). The research of Lee, Bedi, Tsang., Harms,
Bakshi proved that the first successful digital currency appeared in the world which was
named Bitcoin in 2009 (2016, p. 83). According to the Lee (2017) that Bitcoin is first become
visible in 2008 by Satoshi Nakamoto - a fictitious name. Since that time, nearly 700 other
types of currency made which are different level of success. This historical facts provides
future currency will related to the cryptographical technology.
Specific background:
In the era of advancement technology, digital currencies are reach the different level
than we thought. Since the first digital currency appeared in a society, some fields are
changed a lot. On the other hand, advancement technology in digital currency big impacting
on society in a positive and negative way. I found 18 sources that related to the digital
currency and their effects, how digital currencies changing our individual life and how digital

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currencies implementing illegal activities. According to my research that new digital
currencies effects on three main course. First main course, digital currencies involved illegal
activities, including drugs, terrorist operation. Terrosim operations usually use a bitcoin due
to the Blockchain technology- unfindable transaction from Banks and Governments. Second
main course is digital currencies effect to our economy. For the individuals, international
purchase, tradings and peer to peer transacts were complicated for individuals. Once we use
digital currencies, we can purchase, trading and international withdraw without step fee.
Moreover, digital currencies supporting economic growth in Kenya. Third main course is
digital currencies are effects to the fiat currency.
Advancement in technology has caused the growth in digital currency
Bitcoin
One of the successful digital currencies is Bitcoin. Murali explained that bitcoin is
invented by Satoshi Nakamoto and it is digital property, purchase and payment technology
(2013, p. 38). The bitcoin is peer to peer system which means consumers can transact each
others without middleman. Consumer’s transacting records saved in Blockchain without
control of The Central Bank, Government, and third party. Paley studied that sometimes
bitcoin defined Bank-free monetary system and bitcoin is peer to peer system that exist on the
open-source Bitcoin network software (2013,p. 78) The network software does works without
middleman anywhere and anytime.
Bitcoin works through the Blockchain; unfindable for governments, CB (Central
Bank) and third institution. There are few essentials in Bitcoin transaction. A Public address
and private address. Public address does receive your bitcoin while private address does send
your one.
Larissa, Suneal, King (2016) discusses that a lot of people wondered how single

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bitcoin same prices to hundreds or thousands U.S dollars. According to Dion-Schwarz,
Manheim, Johnston (2019), “Many have claimed that Bitcoin is no more than a Ponzi
scheme, or have worried that it represents the next tulip disaster waiting to happen”.
Blockchain
If digital currency would use internet to transact digital currency (such as bitcoin), it would
be inefficient. Blockchain is most crucial software for bitcoin. Larissa, Kind, Suneal
explained that traditional money or fiat currency have got own physical form while bitcoin
does not (2016, p. 90). Bitcoins and digital currencies are can be stored, traded, transferred,
using Blockchain. Blockchain makes bitcoin’s peer to peer trade system. Moreover, Micheal
(2014) stated that bitcoin consumers can exchange bitcoins in same way.
Blockchain works like a Public Database or a Transaction Database. It allows
individuals to see transaction history ever made. The database is completely public for
anyone which means anyone can see your balance and transaction. According to Joab (2015),
stated that many people argue that blockchain allows transacting anonymous users but it is
still possible to find them users IP address.
Bitcoins does not controlled by Government, Central bank, or anyone else. It is called
decentralization which means independent from any other institutions. According to Larissa,
Kind, Suneal, “Decentralization is like Wikipedia, Craigslist, and the ocean starfish that cling
to rocky shorelines” (2016, p. 91). Another advantage of a decentralized financial system is
that decentralization is can not be censored. Lee, Bedi, Tsang, Harms, Bakshi’s (2016) study
found the following: While PayPal froze the accounts of WikiLeaks after it released secret
State Department cables, and prevented its customers from making donations to the group,
such transactional prior restraint would not be possible on the Bitcoin network because there
is no intermediary (p. 91). Before the bitcoin digital currency, only third parties (Banks,

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governments etc) verify each transaction when people transacting money. While the
Blockchain does depend on “proof” to determine whether a transaction is authentic or fake.
Bitcoin has own software technology that autonomously verify user’s transaction honestly
and securly.
One of the reasons that rely on bitcoin transaction is cryptography. Using a
cryptography is most securely transact money to peer to peer. Moffat’s (2019) study found
the following: Cryptography is the art of creating and using methods of disguising messages,
using codes, ciphers, and other methods, so that only certain people can see the real message.
The Effects Digital Currency Has on The Illegal Activity
Digital currencies are most reliable for secure and most dangerous for unfindable.
Sean, Jonathan and Talis (2018) stated that government noted that about one third of Bitcoin
users engage in illegal activities and estimatedly 76 billion dollar involved per year. Bitcoin
can be most dangerous and hidden supporting innovation for illegal activity. Digital
currencies have fast-grown technology and their prices are reached over than 300 billion
dollar in 2018 (Sean, Jonathan and Talis, 2018). The fast growth and anonymity in
cryptocurrencies have created significant regulatory challenges. Some countries are already
banned or seriously concerned about cryptocurrency in their country. For example; Chinese
government banned trading Bitcoin and other types of cryptocurrencies. Also, Bank of
England’s Mark Carney published in their country about dangerous in cryptocurrency.
Although cryptocurrencies are reliable to transact, more faster than international trading ,
efficient in settlement of payment, governments concerns about their use in illegal activities
such as (drugs, hacks and thefts, llegal pornography, even murder for hire). Digital currencies
are potential to participate in terrorism- fund, launder money and avoid capital controls (Lee,
Bedi, Tsang, Harms & Bakshi, 2016).

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Supporting terrorism operation:
According to Heather (2017), “Media reports have outlined the notion that some, or even
many, terrorist organizations have unlimited, untraceable sources of digital money, such as
Bitcoin, which will be used to undermine the successes of CTF”.
Terrorists use cryptocurrency in three ways, receive, management and spending
(Jayesh, 2012). According to Groysman (2018), Digital currencies or cryptocurrencies more
convenient to fund terrorsim operation. Although terrorists can purchase weapons on black
market with cryptocurrency, it is unlikely that terrorists not possible to directly purchase in
black market or dark web. While they are more potential convert their cryptocurrency to fiat
currency in Wester countries which would be convenient for terrorists. Second, Management
and Transfer; If their cryptocurrency transact successfully, they will purchase their weapon or
harmful items. Although using a cryptocurrency transfering is difficult for terrorists, they
have a chance for external funders or primarily groups. Foley, Karlsen & Putnins (2017)
stated that Hezbollah terrorist group can control banking systems in Iran and Libya and relies
heavily on state sponsorship. While Al Qaïda and affiliates must use different methods.
Furthermore, as this illegal activities, these groups want to use cryptocurrency to manage
their money in the near future (Cynthia, David & Patrick, 201 jooo
9). Lastly, Spending method. Once they receive and manage their cryptocurrencies,
they will spend funds they have collected. There’re differentiate between operating costs and
costs to produce violence. However, both are usually funded by same sponsorships.
Reducing risks for drug traders
Drug trade is strongly supported by cryptocurrencies such as bitcoin, litecoin,
Ethereum. Before invent of bitcoin and blockchain system, drug traders would sell
their drugs face by face and get come with fiat currency. While cryptocurrencies make

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it convenient for drug traders. They can sell drugs without meeting and the costumer
pay without fiat currency (Greysman, 2018). This makes a comfortable condition for
drug traders and the costumer. Otherwise, cryptocurrency eliminating their risk to
caught government.
There are online drug markets in internet which name is Dark web or Darknet.
The online system allows to exchange drugs for the costumer. Greysman (2018)
studies found that users need to special internet browser for the darknet web. As a
result, digital currencies, especially bitcoin is reducing risk for drug traders due to the
decentralization.
The Effects Digital Currency Has on The Economy
Lower transaction cost
The effect of digital currency has on the economy is making lower transaction cost.
For consumers, being a transaction fee low is most feasible and convenient choice to tranctact
domestically or internationally. According to Lam (2014), “Bitcoin was designed with low
transaction costs.'' The digital currency, especially bitcoin has low transaction fee due to the
blockchain. The blockchain make lower transaction cost without Central Banks,
Governments, or third institutions. Bedi, Tsang, Harms & Bakshi ( 2016), “Bitcoin
transactions, which cannot be countermanded, also does not provide for a chargeback
mechanism.” Moreover, Lam (2014) proved that Bitcoin is the most feasible choice for cost-
conscious business. Transaction low cost are make a lot of opportunities if only business and
markets but also individuals.
Investment to economic growth
The foster growth economy is another effect of digital currency has on the economy.

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There are a lot of negative cases of digital currency, while digital currencies are effect on
economic growth in Kenya. Naboulsi, Neubert (2018) found that the effect of digital currency
is improving Kenya’s economy because of the M-Pesa company and BitPesa digital currency.
BitPesa is first digital currency in Kenya that allows convert money (Africian currency) to
Bitcoin, and “M-Pesa is a mobile phone based money transfer that allows users to transfer,
deposit, withdraw and pay using their mobile device” (M-Pesa, 2018). Furthermore, most of
the Kenya’s using mobile phone sales their products and transfer money to internationally
that growth economy.
The Effects Digital Currency Has on Fiat currency
Depreciation of Fiat currency
The digital currency impact on depreciation of fiat currency. Fiat currency defined by paper
money, coins and some bank notes that issued from country. Peter (1999) found “Paper
money is an ancient technology and an inconvenient means of payment.” In the era of digital
age, people don’t have to carry their holdings, such as money, coins or banknotes. The forms
of fiat currency can be converted to the digital currency, including Bitcoin, Counterparty,
Mazacoin. According to Narula (2017), There was a country called Yap in the 1800s. Their
shape of money was unique. They use Rai stone made by limestone disc. But they couldn’t
use their limestone to purchase other countries. Because they were massive about 4 tons. So
they do not move Rai stones instead just label it. The Another historical evidence was
happened in 1932. The Bank of France asked The United States convert their assets from
Dollar into gold. But it was inconvenient because tons of gold shipping was difficult. So
someone went to France and just label it. It is just like Rai stones. There are no difference
between Rai stone and Dollar. Contrastly, digital currencies are never be same like the Rai

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stone or our currency using money. When we travel to another country, we convert our
currency or we store in our visa or international cards. However, converting to another
currency is usually inefficient and visa purchasing is always expensive. Therefore, fiat
currency will be replaced by digital currency with no arguments.
Discussion
It is important to understand the advanced technology has caused growth in digital currency.
Since the first digital currency invented by David Chaum in 1990, monetary system was
changed a lot, but not during that time. Even his company (electronic payment allow to
transfer to person-to-person) bankrupted in 1998, first succeed digital currency invented by
Satoshi Nakamoto (pseudonym- single person or group of people) after 11 year later. The
first successful currency known as Bitcoin in 2009. Moreover, the growth in digital currency
has effects on three sides on society. First, The effect of digital currency is supporting illegal
activity. Bitcoin was designed for unfindable technology which is decentralization.
Decentralization means that users can transfer their money without Central Banks,
Governments or third institutions. For the terrorism, drug dealers and other illegal activities,
decentralization is may safe to use it. They usually use Bitcoin for fund to terrorism operation
and drug dealers trading their drugs to consumers. However, drug dealers use dark-web or
knows as black market to sell drugs and other illegal activity. Second, digital currencies are
effects in economy, as lower transaction fees and growth economy in some ways. In the
bitcoin payment system, there are feasible to lower cost to transact that especially benefits on
con-conscious businesses. Due to the dependent or decentralization system makes lower
transaction fee. Digital currency especially bitcoin, there is unnecessary a Middleman
(Central Bank, Government, Third institutions) to transact person-to-person. Moreover,
digital currencies replacing fiat currency. In the advanced technology era, fiat currency is

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ancient technology for the consumers that when we transacting internationally, there are
problems comes out such as delay money or expensive step fee. While digital currency
especially bitcoin can easily transact money to person-to-person and anywhere to anyone
securely and fast.All of fiat currency potential to convert their value. Therefore, digital
currency makes depreciation for Fiat currency. Lastly, Digital currencies are effects on
society positive and negative ways. Both can be arguable and defensible but i want to find out
the causes and effects of advanced technology in growth digital currency. Therefore, i`ve
found the digital currencies can be dangerous when used wrong people. While digital
currencies are supporting growth economy
Conclusion
The advancement in technology has caused the growth in digital currency which has an effect
on illegal activities, economy and fiat currency.
In this research, the couple of research articles and journals have been reviewed, the main
purpose is to find out how digital currencies are effects on our life and economy and how
powerful is this digital currency to our life positive and negative ways. The results showed
that digital currencies fast grown in the last decades due to the advanced technology and
digital currencies effects on 3 main course of our life, including Economy, Illegal activity and
Fiat currency. Moreover, the effects has 2 sides in positive and negative ways. For the
positive side, digital currencies are supporting economic growth in Kenya and blockchain can
reduce transaction fees. For the negative side, digital currencies, especially Bitcoin is
involving illegal activities such as terrorist operation and drug dealing. The bitcoin
technology is unfindable from the Central banks, Governments or Third institutions.
The research about the digital currencies are significant not only government, banks but also
for individuals. Transactions, purchases and fiat currencies are fundamental of all courses

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such as business, normal transactions, holdings etc. If our monetary system exchanged to the
digital currency, people who have education of digital currency, can survive. Unfortunately, a
lot of experts, financialists proven that future currency and future monetary system is all
related to the digital currency and blockchain. As a result, even digital currencies are effects a
lot of positive ways on society, we should use digital currency in good way.

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