UNMASKING TODAY’S VIRTUAL ECONOMY

How much do you think you know about today’s virtual economy? You may know much or less. However, like any other field, it is dynamic in nature and to understand it better, you should always seek to know its current status and how it operates. Bear in mind that many people don’t engage in a virtual economy because they know little about it despite having great opportunities to tap into. It is, therefore, better to understand what actually it is, its originality, development, and how it works. Never forget that everything in the world has its merits and demerits, so does virtual economy!! A virtual economy can be defined as a process whereby people exchange virtual items and services with virtual currency. Virtual currency is a type of digital currency that exists only in digital form but exhibits characteristics of physical currency such as limited in supply, has a value attached to it and is acceptable. It is issued and controlled mostly by programmers, its developers, and used by members of a virtual community. Examples of virtual currencies include bitcoin which was introduced in 2008 by Satoshi Nakamoto, digital gold currency, ripple, litecoin, dogecoin among many others. Ripple and bitcoin are examples of cryptocurrencies – a digital currency that uses cryptography for security hence safe financial transactions. Cryptocurrencies are decentralized because transactions are done on a peer-to-peer system to avoid double spending, unlike non-cryptocurrencies, which have a centralized server. The decentralized system is simply a blockchain – a distributed ledger technology serving as a public financial transaction database and consists of records called blocks that are linked and secured using cryptography. Cryptography is basically encryption and is mostly done with the aim of preventing theft or alteration of data. It involves converting ordinary information into unintelligible text and thus prevents people from doing fraudulent transactions. CFD Premium An example of a virtual economy is forex – an online global decentralized market where world’s currencies are traded. However, forex may take place on a physical platform such as forex trader, e.g., banks and usually hard cash is involved. The currencies usually exist in digital form if traded online and have two prices, that is, bid and ask. Bid price refers to the amount the market will buy the quote currency for in relation to the base currency while ask price is the vice versa. Ask can be understood to be the amount at which one unit of the base currency will be sold for in relation to the quote currency. Therefore, currency pairs are used to value currencies and may be quoted either directly or indirectly. As always, the bid price is lesser than the ask price and is the first currency that appears in the currency pair quotation. The difference between the bid and the ask price is known as the spread, and it determines the profit to be earned or loss to be incurred after trading currencies. Basically, forex trading involves selling one currency to buy another, and that is why they are quoted in pairs. For example, EUR/USD is a currency pair in which you simultaneously purchase euros by selling US dollars. US dollar is the quote currency while the base currency is euro. For example, if EUR/USD is trading at 1.44555, it means that one euro is worth 1.44555 US dollars. Non-cryptocurrencies have a centralized server hence its control may be manipulated by a singer user who has authority and access to the system. As such, cryptocurrencies are better off and understanding them is of crucial importance as they hold great future.