Theme 4, Unit 1 - Virtual currencies Flashcards
What is a virtual currency ?
- Digital form of money that exists purely in electronic form and can be used to perform transactions, just like traditional currencies.
- It is generally not issued or controlled by any central authority (like a government or central bank).
What are the uses of virtual currency ?
- Meduim of exchange.
- Unit of account.
- Store of value.
What is decentralized virtual currency ?
- Cryptocurrencies like bitcoin.
- There is no central authority managing the currency.
- Increases transparency, reduces reliance on intermediaries (e.g., banks), and often provides anonymity.
What is centralized virtual currency ?
- Central Bank Digital Currencies.
- A central administrator or authority controls the currency.
- Backed by the central bank, stable in value, and can be used as legal tender for transactions within the country.
What is convertible virtual currency ?
- Bitcoin.
- Can be exchanged for fiat currency (e.g., USD, ZAR) and vice versa.
- Allows users to convert virtual currency into traditional money.
What is non-convertable virtual currency ?
- In-game currencies like WoW Gold.
- Cannot be converted into fiat money, and it’s typically confined to a particular platform or game.
- Useful for in-game purchases but not transferable to real-world money.
What is mining ?
- The process by which new bitcoins are created and transactions are validated.
- It involves solving complex computational problems and rewarding miners with newly created bitcoins.
What is proof of work ?
- This is the consensus mechanism used by Bitcoin to validate transactions and add them to the blockchain.
- It is resource-intensive and contributes to the energy consumption associated with Bitcoin mining.
What are the benefits of cryptocurrencies as a form of payment ?
- Low Transaction Costs.
- Anonymity.
- Immutability.
- Transparency.
What are the risks associated with cryptocurrencies ?
- Irreversibility.
- Volatility.
- Regulation Challenges.
- Cybersecurity.
- Money Laundering.
Discuss the regulation of cryptocurrencies in South Africa.
South Africa does not recognize cryptocurrencies as legal tender, meaning they are not officially issued or regulated by the South African Reserve Bank (SARB).
What is the SARB’s stance on the risks of cryptocurrencies ?
- SARB has expressed concerns about the lack of a regulatory framework, making it difficult to enforce finality in payment systems and protect users.
- Cryptocurrencies like Bitcoin are less susceptible to freezing or seizure, making them attractive for illicit activities.
- Cross-border exchanges, the SARB does not regulate cross-border cryptocurrency exchanges, making international transfers and transactions more difficult to control.
What are the advantages of Central Bank Digital Currencies over cryptocurrencies ?
- Stability.
- Regulation.
- Financial Inclusion.
What are the two types of
CBDC’s ?
- Wholesale CBDC which is used by banks and financial institutions for interbank payments.
- Retail CBDC which is used between businesses and consumers for everyday transactions and can be token-based or account-based.
What are the challenges to regulating cryptocurrencies ?
- There is no universal definition of what constitutes a cryptocurrency, which complicates regulatory approaches.
- Without a central authority, it is difficult to enforce laws and regulations, especially if the user is located abroad.
- The high volatility of cryptocurrencies can lead to financial instability for investors and users.
- Cryptocurrencies operate globally, making it difficult to regulate international transactions and ensure compliance with local laws.
