Term Paper Sample: Regulation and Digital Currencies

7 pages
1907 words
Wesleyan University
Type of paper: 
Term paper
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The advancement of information technology and telecommunication has seen a rise in many services in the world today. Some of these services allow the movement of trillions of dollars each day around the world and as a result, has made business easy. With the growth in the electronic retail technology, electronic retail payments are now a possibility and have received a huge demand in the current society. Among areas that have seen a rise is the introduction of digital currency. This has increased electronic retail payment and increased profits for many businesses. Some of the conventional digital currencies in the market today are BitCoin, Ethereum among others. This paper answers the questions related to running a business website that uses Ethereum digital currency.

Question 1

What business model will you propose that Skills Depot use and why (refer to the concept of offer and acceptance in framing your answer)?

Ethereum is not an organization that is operated on a business model and planning but is used mainly for transactions and investments. This makes the use of the business model irrelevant. However, with the incorporation of the Skills Depot website which uses Ethereum, the suitable business model can be a mix of both centralized and decentralized business models. The peer-to-peer payment system in the decentralized model will allow the clients or users to work with no authority or a third person involvement and transactions and problems that exist in e-commerce such as fraud will be curbed. Further, decentralized exchanges make it easy for the customers to do the exchange without necessarily relying on the third party service to handle funds or transactions but instead the exchange will be peer-to-peer directly between the users.

Centralized models, on the other hand, will complement the weaknesses of the decentralized models such as the one that requires users to be online before they can make transactions. The model will allow advanced exchanges and transactions to be made. The decentralized exchanges, as opposed to centralized, are critical in providing more advanced features that the latter cannot cater. This includes trading in assets and allows the users to trade assets for assets. It further allows the customers to trade in cryptocurrencies directly without using proxy tokens which can be a great security risk. Unlike the centralized model of trading, un-centralized trading is easier to use but also provides advanced trading features.

What changes would need to be made to the Skills Depot Terms of Use (based on the law as it currently stands - i.e. giving contractual effect to click-wrap contracts) to give effect to the business model you have selected?

Hackers have been stealing from people online due to weak laws and features. The decentralized financial exchanges over the internet should have its own management system to limit theft and allow the systems for the smart contracts to be availed on time. Regulations on the transactions should seek to balance on the stability of the system of payment while on the other hand maintaining safety. Consequently, the Skills Depot should facilitate the development of the new technologies that will socially and economically benefit users of the decentralized model. The terms should also be geared towards robustness and reliability and how these apply to consumer protection as well as combating cyber-terrorism.

What provisions (or systems) will you propose to be built into each smart contract to support/manage Skills Depots chosen business model?

Running a decentralized model in the crypto-currency exchanges requires some features to be built to keep funds safe. An application such as Bit-square is one of the applications that should be embedded to allow the exchange of Ethereum directly with the skills depot without involving the third party. A digital ledger should also be incorporated into the smart contracts that allow transactions from one party to the other with the inability to change or alter anything. Alternatively, distributed ledgers that allow only those users with permission can be allowed to have a copy of transactions can also be incorporated into the new model. This provision only allows simple contracts to be executed after certain specified conditions have been met. In the case study, a user, for example, should be registered and have paid a monthly fee before the smart contract is implemented.

How would you alter the business plan or the smart contract if Skills Depot expected that in six months time an affiliate program will commence? Under the plan, an affiliate will be paid a fee by if the affiliate introduces a booking or introduces new businesses to Skills Depot.

The changes in the business plan or smart contract will be altered to suit the affiliate program that will commence in the specified time. The new module that is developed should credit the affiliate after successfully introducing a new business or booking into the Skills Depot. The smart contract, however, must meet the security features that ensure genuine affiliates are the only ones credited and the fake ones are rejected by the system as some people might attempt to use the new changes to their advantage.

Under the decentralized model, Skills Depot will be responsible for the payment of the affiliate. The affiliate will be credited once the firm receives and confirms the new booking or new business.

How would you alter the business model if the type of consultants who were involved with Skills Deport were in high-risk skills such as explosives experts for the mining industry or security experts for the protection of government records?

People with high-risk skills such as the explosives experts and security experts for the protection of sensitive information require privacy of their data. This means that security mechanisms such as encryption should be used to in the transactions to avoid data being tapped and utilized by the wrong people. A special module should be developed to handle such group of people and keep their details safe.

Other considerations to be taken into account even before establishing Skills Depot is finding a community to build the business. This begins with attaining trust of the potential customers or users of the platform that makes it possible for the exchange to occur. The second aspect is integrity and security of data exchanged must be carefully taken into account to reduce possible losses not only of funds but also of information. Guardian client software should also be developed to control the exchange and monitor smart contracts whenever transactions occur. This will limit unwarranted occurrences from happening.

Question 2

What would your advice be on this plan?

The plan should have a well laid down structure of how cryptocurrency is changed to fiat money and the procedure as well as the amount to be cashed into a high-interest account and how the consultant should be paid after the 10 day period has elapsed. Failure to manage this process by setting up the right procedure and the chain of events will not add any value to the Skills Depot. Another crucial area that needs to be looked into is the conversion and transfer of the digital currency. The digital currency market is one of the most dynamic markets which changes within a short time, and failure to analyze the market correctly might result in losses.

Would you alter the plan to make it more workable? If so, how?The primary objective of this is to make the most out of the exchange by making a profit before the period of paying the consultant elapses. However, for the much-needed effect to be felt, security features such be put in place to ensure that no loopholes exist. The system should be made in a certain way that it credits the consultant automatically and retains the remaining funds. So far, I find the plan workable and profitable and have no reason to reject it. The reason for this is that the system is beneficial to the company and the consultants. While the company prefers being paid using the digital currency, most of the consultants on the other hand prefer being paid using fiat money. Further, the plan will be workable to the company who will make a profit from the new system due to the interest that will accrue before the payment date elapses.

What issues would arise if Skills Depot was paid in digital currency, but only paid the consultants in fiat currency?

With Skills Depot getting paid in digital currency and in return paying consultants in fiat currency, a number of issues are likely to occur. Among the issues that arise are the conversion of digital currency into fiat currency and credit them accordingly. This means that the firm will have to find a way of converting digital currency into fiat currency and dispersing them to their respective consultants. Additionally, the legal part should also be catered for adequately. This involves defining frameworks that address the legality of documents in the exchange of digital currency to fiat currency. Others include the data protection laws which help Skills Depot cope with the challenges of efficiency and applicability of the currencies. Other considerations should also be made regarding the reception and transmission of digital currency from the customers, securing, storing and maintaining control of the information of the consultant and the clients and controlling as well as issuing and administering the digital and fiat currencies. Another crucial concern is the performance and conversion or exchange of currencies. With this, the right methods of conversion are sought and monitored since the cryptocurrency market is dynamic and changes with time.

Question 3

Public block chains such as Ethereum break many rules both legal and economic ones. Among the paradigms that are violated by the crypto-currencies is personal data protection. These regulations are of great importance in several areas such as financial institutions, healthcare among others where blockchain is already in use. While the application of blockchain in business has already gained ground, existing regulations on the same is still a challenge which requires adequate solutions. Being decentralized, blockchains make it difficult to identify a person responsible for a particular occurrence and personal data use or processing. Another challenge is the privacy of personal data which is accessible to everyone. This may lead to valuable information being obtained and even used illegally.

The legal regulations that should be implemented in blockchain involve those that protect the privacy of personal data while on the other hand ensuring that the origin of transactions is known. In an event where there is no possibility of identifying the person or entity processing data, it makes it difficult to locate and assess data and make a conclusion. Consequently, the legal security laws should be established. Being an infant technology malicious people have managed to use famous blockchains to blackmail individuals into making payments. As a result, it is now time to find legal frameworks to provide guidance on procedures that should be followed while carrying out transactions. Other legal regulations should address regulating the legal nature of electronic ledgers, the legal validity of documents stored as evidence of possession of a cryptocurrency and regulation of smart contacts CITATION Mar16 \l 1033 (Tena).

The legal framework regarding the use of distributed ledgers should be used in case something does not work correctly. These ledgers are distributed and have no specific place or location. This however makes it hard in terms of jurisdiction and the applicable law. This raises concerns since there will be no party that is ultimately responsible for the functioning of the ledger...

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