Virtual currencies, especially digital cryptocurrencies such as Bitcoin, will continue to provide challenges for cybersecurity professionals as the use of these currencies becomes more common.
Bitcoin authority Andrew Wagner notes that any money "based in 1's and 0's" meets the definition of digital currency (Wagner, 2014), although some users' first encounter with virtual currency comes with visits to virtual reality worlds and internet gaming sites. For example, Linden dollars are used in Second Life, an online virtual world (Second Life, n.d.). Linden Labs, the creator of Second Life, controls the supply of Linden dollars (Wagner, 2014).
Tokens that can be purchased with real money are used for the online gaming site World of Warcraft and other gaming sites (Osborn, 2017), but those sites and their currencies are controlled by the game developers (Wagner, 2014).
However, virtual currencies such as Bitcoin produced by open-source peer-to-peer software are used outside the virtual fantasy world. More importantly, they are not controlled by any one entity, but by the math-based cryptography itself. Some Bitcoin users are interested in the currency as a financial investment, but others are using Bitcoins for direct financial transactions.
Bitcoins are accepted by "brick and mortar" companies such as Dell as well as online providers (Chokun, 2016). Users make payments in Bitcoin from a virtual wallet application (Bitcoin FAQ, n.d.). However, the currency itself is not anonymous and transactions are public, stored in the Bitcoin network (Bitcoin FAQ, n.d.). There is no bank or third-party involved; transactions are made directly from buyers to sellers. The cryptographic code prevents double spending, something that a bank would ordinarily guard against (Davis, 2011).
As of 2020, other cryptocurrencies include Ethereum, Litecoin, Dash, Ripple, Monero, and Zcash. New ones are continually being developed while some fall out of favor.
The origin of Bitcoin is documented, but the creator remains murky. A man named "Satoshi Nakamoto" published the original paper on Bitcoin and released the software, but whether Nakamoto is a real name or a real person is in question. At one point, Australian entrepreneur Craig Wright claimed to be Nakamoto and offered proof to Bitcoin insiders, but on an Internet post in 2016, he said he did not "have the courage" to continue to pursue his claim (Dreyfuss, 2016). That claim has been refuted by other experts, some who believe that "Nakamoto" had to actually have been a group of programmers to create the sophisticated programming (Wallace, 2011).
The Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) has issued guidelines for anyone involved with "convertible" virtual currencies, defined either as having an equivalent value in real currency or as substitutes for real currency (FinCEN, 2013). That means that anyone who accepts or transmits these currencies as an administrator falls under federal regulations such as the Bank Secrecy Act and is subject to FinCEN's regulations. Users, however, are not defined as a "money service business" by FinCEN and are not subject to registration, reporting, and recordkeeping regulations (FinCEN, 2013).
References
Bitcoin. (n.d.). Frequently asked questions. https://bitcoin.org/en/faq#how-difficult-is-it-to-make-a-bitcoin-payment
Chokun, J. (2016, June 19). Who accepts Bitcoins as payment? https://99bitcoins.com/who-accepts-bitcoins-payment-companies-stores-take-bitcoins/
Davis, J. (2011, October 10). The crypto-currency. The New Yorker. http://www.newyorker.com/magazine/2011/10/10/the-crypto-currency
Dreyfuss, E. (2016, May 5). Craig Wright ends his attempt to prove he created Bitcoin: 'I'm sorry.' https://www.wired.com/2016/05/craig-wright-ends-attempt-prove-created-bitcoin-im-sorry/
Financial Crimes Enforcement Network (FinCEN). (2013, March 18). Guidance: Application of FinCEN's regulations to persons administering, exchanging, or using virtual currencies. https://web.archive.org/web/20130319213642/http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html
Osborn, A. (2017, February 7). World of Warfare currency can now be spent in other Blizzard games. http://www.ign.com/articles/2017/02/07/world-of-warcraft-currency-can-now-be-spent-in-other-blizzard-games
Second Life. (n.d.). https://community.secondlife.com/
Wallace, B. (2011, November 11). The rise and fall of Bitcoin. https://www.wired.com/2011/11/mf_bitcoin/all/
WoW Token Info. (n.d.). https://wowtoken.info/
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