EB5 Investors Magazine Volume 5, Issue 2 - Page 102

WHAT IS DIGITAL CURRENCY? Digital currency, also described as cryptocurrency, is a peer-to-peer electronic cash system where people can engage in financial transactions without a centralized server or intermediary financial institution, 1 for example, sending currency electronically without going through a bank. In other words, digital currency is a digital asset in the form of an electronic payment. Moreover, the value of this digital currency is not tied to that of a particular country or other currency, but is instead determined by the market principals of supply and demand. HOW DOES DIGITAL CURRENCY WORK? There are companies across the world known as “mining companies” or “miners” that maintain the “block chain” ledger of transactions that is publicly available and decentralized. Block chain is basically a decentralized shared public ledger or list of entries of all confirmed digital currency transactions. Once a transaction has been recorded, the ledger cannot be unilaterally altered, and can only be adjusted by the agreement of involved parties. Miners are incentivized to maintain the block chain through the awarding of newly created digital currency, transaction fees (also in the form of digital currency), or some combination of the two. The miner companies will often sell the digital currency to specialty brokers in the industry. The brokers will then sell to individuals, often times through a local or international cryptocurrency exchange. One such digital currency is bitcoin; and while bitcoin is only one of many different digital currencies in the market, it is currently the most well known and most traded. SO HOW DOES BITCOIN WORK? In simple terms, the first step for an individual to purchase bitcoin, or other digital currencies, is to set up a bitcoin wallet online with a cryptocurrency exchange that accepts the investor’s local country currency. That individual then purchases the digital currency using the local currency. The miner companies collect information related to this transaction and add it to the ledgers, which maintain all historic information about actual transfer amounts and dates, but not the names of the individual buyers and sellers. This ledger and its information is public and cannot be altered, but the individuals remain anonymous. 101 EB5 INVESTORS M AGAZINE Once the investor’s bitcoin wallet has been funded, the investor can instantly transfer the bitcoin electronically to another bitcoin buyer or exchange. 2 The investor then electronically sends the bitcoin to a cryptocurrency exchange in the U.S. and then exchanges or sells the bitcoin for its equivalent in U.S. dollars. This effectively avoids the need to go through a standard bank or financial institution where currency exchange and transfer limitations would be imposed. The investor can then have the U.S. dollars transferred to an EB-5 project for investment in a job creating enterprise. 3 Private individuals also have the ability to initiate a sale or transfer of digital currency between each other without going through an exchange. To do so they would "broadcast a transaction," i.e., publish on the block chain general ledger that they are transferring X amount of bitcoins. PROBLEMS WITH USING BITCOIN OR OTHER DIGITAL CURRENCIES Unfortunately, the reality of using digital currency is not so simple. While some countries such as Japan and South Korea are easing government restrictions, other countries such as China are increasing restrictions on the purchase and exchange of digital currency. In September, the government of China issued a new rule prohibiting all