While digital currencies have been around since the early 90’s, not many people were aware of them. However, now with increasing digitalization of financial systems and the growth of third party payment processors, virtual currencies have once again started gaining popularity due to Bitcoins. Bitcoin is a decentralized virtual cryptocurrency that functions on a peer to peer network. It was originally created by Satoshi Nakamoto whose real identity is not yet known. According to one estimate, there are more than 12 million bitcoins being used in circulation at this time.
One of the benefits of virtual currencies is that they are not limited to borders and they do not depend on any banking system. In that sense, they are also unregulated money. Regulations for bitcoins can vary by country. Many payment platforms support bitcoins and allow you to send and receive funds using this virtual currency thus bypassing traditional banking systems. In recent times, there has been considerable discussion regarding their use for criminal activity. According to Payza’s Firoz Patel, fraud transactions are one of the biggest issues being faced by the payment industry and legitimate companies today. Bitcoin transactions are increasingly being associated with credit card fraud.
Bitcoins And Credit Card Fraud
When bitcoins are purchased with a credit card, it can be considered to be similar to a physical cash withdrawal from the card. Thus, as you hand over the physical cash or bitcoins to the other party, the transaction is complete. In case the credit card transaction is reversed, then the party that has handed over the bitcoins is at a loss as you cannot get your bitcoins back.
Bitcoins are liquid and can be used to procure other currencies that are of immediate use. Thus bitcoin traders could be targets of credit card fraud. Bitcoins are typically traded on thin margins. Thus in case of fraud, the party selling the bitcoins takes a bigger hit. Also note, bitcoin payments are usually irreversible.
The Road Ahead
As bitcoins continue to grow in popularity, there are bound to be some regulations and course corrections in this space. Security issues around bitcoins and other digital currencies are expected to be resolved through the development of better technology and systems and more compliance guidelines. The disruption caused by digital currencies is likely to shake up banking systems of the world and create an imperative need to take measures to control the misuse of this currency for fraudulent purposes.