INTERNATIONAL

BUSINESS AND
TRADE
SECOND SEMESTER 2024-2025
VIRTUAL CURRENCIES
At the end of the lesson, the students should be able
to:
1. explain the meaning of virtual currency;
2. differentiate fiat money and e-money;
3. discuss what a virtual currency exchange is;
4. elaborate on blockchain technology;
5. distinguish between centralized and decentralized
relevant to cryptocurrencies; and
6. elucidate on the top six 5-star cryptocurrencies.
Cryptocurrency or virtual/digital currency is any
type of digital unit that is used as a medium of
exchange or a form of digitally stored value
generated by agreement within the community
of virtual currency users. It is referred to as
"digital gold." It is also called "altcoiris."
Cryptocurrency is digital money-it is virtual and
has no physical form.
• Fiat currency or cash, on the other hand, is the
real currency. Coins and.. paper money (bills)
issued and printed by the central bank of a
country are fiat currency, fully-backed by the
government of a country and is acceptable as
payment for public and private debts.
• E-money is a digital representation of fiat currency
stored in digital wallets or e-wallets. Any amount
of currency stored in an electronic wallet (such as
GCash, PayMaya, Coins PH, GrabPay, and the like) is
e-money, which can also be accepted as a "card
payment" or can be withdrawn right away as cash.
• Virtual currency, which is stored digitally, would still
need to be converted first to Philippine peso, then
transferred to a destination wallet or be withdrawn as
cash through different mediums that are accepted in
the country. In general, conversion is done through a
virtual currency exchange. In the Philippines,
cryptocurrencies are regulated by the Bangko Sentral ng
Pilipinas (BSP).
• Cryptocurrencies work through blockchain technology. Blockchain is
a special kind of database, a "distributed ledger" or a "global ledger"
built on a data structure known as "blocks." Blockchain allows all
participants to view the records and all the changes that happen in
the database. Your transaction data will be stored in a block, which is
technically a list of other transactions made by other people. The
block where your transaction is listed will then be chained to
previous blocks. Cryptocurrencies use electronic coins as their form
of exchange, which are nothing more than slots in the blockchain.
• Cryptocurrencies use cryptography, the process of
protecting information by using codes, for security. It
is also used to control transactions and increase the
supply. With this feature, cryptocurrencies have
become self-governing and self-regulating. It provides
routine escrow mechanisms that could easily be
implemented to protect buyers.
• However, having no intrinsic value, there are also significant
risks associated with cryptocurrencio intrinsic value, there are
also signifers. The more users a coin has, the more useful it
becomes, and the higher its price goes. Cryptocurrencies
only serve to transfer wealth from one party to another. But
when a coin falls out of favor, there is nothing to stop it from
going to zero and that is the risk.
•China has already developed a Central
Bank-backed crypto, and in the US it was
discussed as part of the C-19 stimulus. In
other words, unregulated cryptocurrencies
will one day compete against state-
sponsored ones, too.
• Decentralized cryptocoin markets run through a
blockchain relying on a peer- to-peer protocol. So
trading altcoins is done through dozens or even
hundreds of independent nodes and masternodes.
Transactions occur only when the nodes come to a
consensus based on the exchange's verification
rules.
•When it comes to cryptocurrency exchange
websites, however, centralization remains a
core concept. Centralized exchanges are run
by companies that manage and earn revenue
from transactions on the platform.
VIRTUAL CURRENCY
• A virtual currency is a digital representation of value only available in electronic
form. It is stored and transacted through designated software, mobile, or
computer applications. Transactions involving virtual currencies occur through
secure, dedicated networks or over the Internet. They are issued by private
parties or groups of developers and are mostly unregulated.

• Virtual currencies are a subset of digital currencies and include other types of
digital currencies, such as cryptocurrencies and tokens issued by private
organizations. The advantages of virtual currencies include faster transaction
speeds and ease of use. The disadvantages of virtual currencies are that they
can be hacked and do not provide much legal recourse to investors because
they are not regulated.
• Virtual currencies are digital representations of value
whose transactions occur on online networks or on the
internet.
• All virtual currencies are digital currencies, but the
opposite is not true.
• Virtual currencies are issued by private organizations or
groups of developers and are mostly unregulated.
• Virtual currencies increase transaction speeds by
removing intermediaries from the process, but they are
also susceptible to hacks and online scams.
UNDERSTANDING VIRTUAL CURRENCIES
• Virtual currencies are a form of digital currency. They are issued by private
parties, such as a group of developers or organizations, and are intended only
for online use—they do not have a physical incarnation like paper money. Thus,
they are different from digital representations of central bank-issued currency,
also known as central bank digital currency (CBDC).
• The term virtual currency came into existence in 2012, when the
European Central Bank (ECB) defined it to classify types of "digital money in an
unregulated environment, issued and controlled by its developers and used as
a payment method among members of a specific virtual community."1 The
Internal Revenue Service (IRS) in the United States describes virtual currencies
as "digital representations of value that function as a unit of account, a store of
value, and a medium of exchange."
• Both definitions, though broad enough to encompass multiple attributes of virtual
currencies, may not be entirely correct today.
• The universe of currencies that may be considered virtual has expanded
considerably since 2012 to include various forms of money that do not adhere to
the ECB's definition of the term. For example, certain cryptocurrencies, which are
considered a form of virtual currency, like Ripple's XRP, are not
strictly controlled or used by a virtual community.
• Virtual currencies have also failed to take off as a payment method or medium of
exchange in mainstream society. They have restricted usage, sometimes in
gaming communities and other times as a speculative investment asset. Whether
they have emerged as a store of value, like gold, also remains questionable.
• There's also the question about regulation. Though virtual currencies remain
unregulated in the vast majority of financial jurisdictions, that situation is slowly
beginning to change. Bitcoin, the cryptocurrency with the biggest market
capitalization, is legal tender in El Salvador.
• In the United States, home to the world’s most sophisticated financial markets, virtual currencies are
unregulated. But regulation is seriously being considered by authorities. The trading watchdog
Securities and Exchange Commission (SEC) wants to bring cryptocurrency exchanges under its
supervision. Regulation for stablecoins, another form of virtual currency, is also in the cards. The IRS
taxes trades that involve certain types of virtual currencies, such as cryptocurrencies.

Types of Virtual Currencies

• Depending on their operating network, virtual currencies are classified as follows:
Closed virtual currency
• A closed virtual currency, as the name suggests, operates in a controlled and private ecosystem. It
cannot be converted into another virtual currency or into a real-world fiat currency. Examples of
closed virtual currencies are currencies in gaming systems. Though such currencies can be used in
their respective environments (in this case games), they cannot be converted into real-world cash.
Another example of closed virtual currencies is airline miles. They are issued by private parties, can
only purchase additional miles, and cannot be converted into their associated monetary value.
• Open virtual currency
• Open virtual currencies are also known as convertible virtual currencies because
they can be converted to other forms of money. They operate in open
ecosystems and can be converted into another currency either within the
platform or outside it. Examples of open virtual currencies are stablecoins and
cryptocurrencies. Bitcoin and Ethereum, the two biggest cryptocurrencies by
market capitalization, can be converted into other cryptocurrencies or certain
fiat currencies. This conversion process is considered a trade transaction by the
IRS and is taxed.

• Though most open virtual currencies have a decentralized setup, certain

cryptocurrencies like Ripple's XRP are centralized in design, meaning a central
agency is responsible for their production and distribution.
• Advantages of Virtual Currencies
• The advantages of virtual currencies are as follows:
• Virtual currencies do not have expensive manufacturing and physical storage
costs.
• The technology rails of virtual currencies increase transaction speeds and
eliminate geographical boundaries.
• Decentralized virtual currencies can eliminate intermediaries during monetary
transactions and establish a direct connection between two transacting parties.
• Virtual currencies can be programmed to complete automated transactions. For
example, smart contracts on Ethereum's blockchain can hold and release money
in escrow accounts without human intervention.
• Virtual currencies are digital repositories of value and can assign value to
disparate sets of objects, from gaming tokens to artwork.
• Disadvantages of Virtual Currencies
• The disadvantages of virtual currencies are as follows:
• Virtual currencies are attractive targets for hackers. There have been several cases of hacking
blockchain networks for cryptocurrencies, a form of virtual currency.
• Though they do not have manufacturing or physical storage costs, virtual currencies have other
associated expenses. For example, cryptocurrency users are required to store them in
digital wallets. At trading exchanges, cryptocurrencies also have custody costs.
• Virtual currencies can be subject to scams. Several initial coin offerings (ICOs), which became
popular in the aftermath of a runup in cryptocurrency prices, were actually scams in which
private developers sold worthless tokens for hypothetical networks. The tokens could not be
converted into other currencies.
• Unregulated virtual currencies do not offer legal recourses to investors because they are issued
by private entities and, for the most part, are not regulated by financial authorities.
• Virtual currencies traded on exchanges, such as cryptocurrencies, can be subject to highly
volatile price swings.
• Differences Between Digital Currencies, Virtual Currencies, and Cryptocurrencies
• Even though they sound alike and function in a similar manner, digital, virtual, and
cryptocurrencies are in fact different. Listed below are the main points of difference between the
three types of currencies:

• All virtual currencies and cryptocurrencies are digital currencies. Not all digital currencies,
however, belong to those two categories. For example, CBDCs are not virtual currencies or
cryptocurrencies.
• Digital currencies can be regulated or unregulated. One example of a regulated digital currency
is CBDC. Examples of unregulated digital currencies are Bitcoin and Ethereum. The
overwhelming majority of virtual currencies are unregulated, while cryptocurrencies are not
regulated in any jurisdiction.
• Not all digital currencies are cryptographically secured. Cryptocurrencies always use
cryptography to secure their networks, while virtual currencies may or may not use cryptography
to secure their networks.
• Source: [Link]
DIFFERENCE BETWEEN FIAT MONEY AND E-MONEY
• What is Fiat Currency (or Fiat Money)?
• Fiat money, simply put, is a legal tender, whose value as a currency is
established by an issuing government and consequently, is also regulated by it.
Fiat money is the exact opposite of commodity money, whose value is based on
an underlying asset, such as gold or silver.

• What is Electronic Money?

• Electronic money refers to the currency electronically stored on electronic
systems and digital databases, as opposed to physical paper and coin money,
and is used to make it easier for users to transact electronically. The value of the
electronic currency is backed by fiat currency.
• Electronic money refers to the currency electronically
stored on electronic systems and digital databases used
to make it easier to transact electronically. It is popularly
referred to by many names, including digital cash, digital
currency, e-money, and so on.
• Fiat money, simply put, is a legal tender, whose value as
a currency is established by an issuing government and
consequently, is also regulated by it.
• Electronic money can be classified into two broad
categories: hard and soft.
CLASSIFICATIONS OF ELECTRONIC MONEY

• Electronic money can be classified into two broad categories:

• 1. Hard
• Hard electronic money is when e-money is used for irreversible transactions, ones that are
highly securitized, and are more or less procedural in nature. They may include transactions
that are drawn through a bank.
• . Soft
• Soft electronic money is when e-money is used for reversible or flexible transactions. There is
an increased level of flexibility offered, and users are allowed to manage their transactions
even after payment is processed, like canceling a transaction or modifying the payment price,
etc.
• The changes can be made post-transaction within a defined period. They may include
transactions that are passed through payment mechanisms like PayPal, PayTM, Interac, credit
cards, and so on.
FEATURES OF ELECTRONIC MONEY

Just like physical paper currency, electronic money also includes the following four
features:
• Store of value: Just like physical currency, electronic money is also a
store of value, the only difference being, that with electronic money, the value is
stored electronically unless and until withdrawn physically.
• Medium of exchange: Electronic money is a medium of exchange, i.e., it is
used to pay for the purchase of a good or when acquiring a service.
• Unit of account: Just like paper currency, electronic money provides a common
measure of the value of the goods and/or services being transacted.
• Standard of deferred payment: Electronic money is used as a means of
deferred payment, i.e., used for the tools of providing credit for repayment at a
future date.
ADVANTAGES OF ELECTRONIC MONEY

• Electronic money offers several advantages for the global economy, including:
• 1. Increased flexibility and convenience
• The use of electronic money brings increased flexibility and convenience to the
table. Transactions can be entered into from anywhere in the world, at any
given time, with one click of a button. It removes the hassle and tediousness
involved with the physical delivery of payments.
• 2. Historical record
• The usage of electronic money is becoming increasingly popular because it
stores a digital historical record of each and every transaction made. It makes
tracing back payments easier and also helps with making detailed expenditure
reports, budgeting, and so on.
• 3. Prevents fraudulent activities
• Since electronic money makes available a detailed historical record of each and every
transaction made, it is very easy to keep track of transactions and trace them back
through the economy. It increases security and helps prevent fraudulent activities and
malpractices.
• 4. Instantaneous
• The use of electronic money brings with it a kind of instantaneousness that has not been
experienced before in the economy. Transactions can be completed in split seconds with
the click of a button from virtually anywhere in the world. It eliminates problems of
physical delivery of payments, including long queues, wait times, etc.
• 5. Increased security
• The use of e-money also brings with it an increased sense of security. To prevent loss of
personal information while transacting online, advanced security measures are
implemented like authentication and tokenization. Stringent verification measures are
also employed to ensure the full authenticity of the transaction.
DISADVANTAGES OF ELECTRONIC MONEY

• Electronic money comes with the following disadvantages:

• 1. Necessity of certain infrastructure
• To use electronic money, the availability of certain infrastructure is necessary. It includes a
computer or a laptop, or a smartphone, and a stable internet connection.
• 2. Possible security breaches/hacks
• The internet always comes with the inevitability of possible security breaches and hacks. A
hack can leak sensitive personal information and can lead to fraud and money laundering.
• 3. Online scams
• Online scamming is also possible. All it takes for a scammer is to pretend to be from a
certain organization or a bank, and consumers are easily convinced to give away their
bank/card details. Despite the increased security and presence of authentication measures
to counter online scams, they are still something to be looked after.
WHAT IS A BLOCKCHAIN TECHNOLOGY?

• A blockchain is a distributed database or ledger

shared among a computer network's nodes. They are best known for their
crucial role in cryptocurrency systems for maintaining a secure and
decentralized record of transactions, but they are not limited to cryptocurrency
uses. Blockchains can be used to make data in any industry immutable—the
term used to describe the inability to be altered.
• Because there is no way to change a block, the only trust needed is at the point
where a user or program enters data. This aspect reduces the need for trusted
third parties, which are usually auditors or other humans that add costs and
make mistakes.
• Since Bitcoin's introduction in 2009, blockchain uses have exploded via the
creation of various cryptocurrencies, decentralized finance (DeFi) applications,
non-fungible tokens (NFTs), and smart contracts.
•Blockchain technology is an
advanced database mechanism
that allows transparent
information sharing within a
business network. A blockchain
database stores data in blocks
that are linked together in a
• Blockchain is a type of shared database that differs from a typical
database in the way it stores information; blockchains store data in
blocks linked together via cryptography.
• Different types of information can be stored on a blockchain, but
the most common use for transactions has been as a ledger.
• In Bitcoin’s case, blockchain is decentralized so that no single
person or group has control—instead, all users collectively retain
control.
• Decentralized blockchains are immutable, which means that the
data entered is irreversible. For Bitcoin, transactions are
permanently recorded and viewable to anyone.
• How Does a Blockchain Work?

You might be familiar with spreadsheets or databases. A blockchain is somewhat similar

because it is a database where information is entered and stored. But the key difference
between a traditional database or spreadsheet and a blockchain is how the data is
structured and accessed.
• A blockchain consists of programs called scripts that conduct the tasks you usually
would in a database: Entering and accessing information and
saving and storing it somewhere. A blockchain is distributed, which means multiple
copies are saved on many machines, and they must all match for it to be valid.
• The blockchain collects transaction information and enters it into a block, like a cell in
a spreadsheet containing information. Once it is full, the information is run through an
encryption algorithm, which creates a hexadecimal number called the hash.
• The hash is then entered into the following block header and encrypted with the other
information in the block. This creates a series of blocks that are chained together.
• Transaction Process
• Transactions follow a specific process, depending on the blockchain they
are taking place on. For example, on Bitcoin's blockchain, if you initiate
a transaction using your cryptocurrency wallet—the application that
provides an interface for the blockchain—it starts a sequence of events.
• In Bitcoin, your transaction is sent to a memory pool, where it is stored
and queued until a miner or validator picks it up. Once it is entered into
a block and the block fills up with transactions, it is closed and
encrypted using an encryption algorithm. Then, the mining begins.
• What is a centralized crypto exchange?
• There are various types of cryptocurrency exchanges, but the most popular
among regular users are centralized exchanges. This is because they are the
main avenue for buying cryptocurrencies, especially for first-time crypto
investors. What exactly is a centralized crypto exchange?
• A centralized cryptocurrency exchange is a digital currency trading platform
that is controlled by a central entity that acts as an intermediary between
cryptocurrency buyers and sellers.

• What is a decentralized crypto exchange?

• A decentralized cryptocurrency exchange is an exchange that is built atop a
decentralized, noncustodial blockchain system that primarily supports direct
peer-to-peer transactions.
TOP SIX 5-STAR CRYPTOCURRENCIES
Cryptocurrency Year Market Cost per Coin Transaction Cost 2020
Established Capitalization US$ US$ Return
US$

Ether (ETH) 2015 200 billion 2,494 10 470%

Bitcoin (BCT) 2009 920 billion 38,900 15 309%

0>Ripple (XRP) 2012 24 billion .88 nominal 16%

Stellar (XLM) 2014 11 billion 0.3349 nominal 189%

Cardano (ADA) 2017 27 billion 1.56 0.07 441%

Dogecoin (DOGE) 2013 41 billion .317 0.03 118%

Ether/Ethereum Bitcoin (BTC) Ripple (XRP)
(ETH)
Stellar (XLM)
Cardano (ADA)
Dogecoin (DOGE)