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Thriving in a digital age: Digital currencies pose the biggest threat to banks – Part III Monday, 5 December 2016 This is the final part of a revised and improved version of a paper published in the Association for Professional Bankers 2016 Annual Convention Publication titled ‘Thriving in a Digital World’. Part I of this paper (available at: http://www.ft.lk/article/581122/Thriving-in-a-DigitalAge--Digital-currencies-pose-the-biggest-challenge-for-banks%E2%80%93-Part-I) examined how paper cur
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   Thriving in a digital age: Digital currencies pose the biggest threat to banks – Part III  Monday, 5 December 2!  This is the #nal part o$ a revised and improved version o$ a paperpublished in the %ssociation $or Pro$essional &ankers 2! %nnual 'onvention Publication titled (Thriving in a Digital )orld*+  Part I o$ this paper available at: http:--...+$t+lk-article-5/!!22-Thriving0in0a0Digital0%ge00Digital0currencies0pose0the0biggest0challenge0$or0banks0121/1340Part0I e6amined ho. paper currencies came to e6istence and ho. they .ere abused by those .ho had the authority to issue them+ The abuse .as mani$ested by an oversupply o$ paper currencies by central banks and governmentsleading to a continuous erosion o$ their value+ The victims .ere people .ho had accepted them as an important component o$ their .ealth+ %s a result, there .as a gro.ing demand $or the introduction o$ alternative currencies+  The main 7uali$ying candidate .as digital currencies, also kno.n as (cryptocurrencies*+ % cryptocurrency is simply a currency that e6ists in cyberspace and is operated by using computer and  internet technology+ The smart mobile phone has been the leading instrument o$ accessing the internet $or using cryptocurrencies $or doing transactions and making payments+ Part II available at: http:--...+$t+lk-article-5/2583-Thriving0in0a0Digital0%ge00Digital0currencies0pose0the0biggest0challenge0to0banks0121/1340Part0II o$ the paper e6amined in detail the operation o$ one o$ such cryptocurrencies, kno.n as &itcoins or &T', that has become popular among many throughout the globe since its introduction in 23+ &T' .as introduced $ollo.ing a seminal paper published by an anonymous developer .ho had taken the penname 9otoshi akamoto+ &T's are governed by a computer program that uses comple6 algorithm to produce them+ Those .ho use the computer programto produce &T's are called (miners* and since the supply is restricted by the program itsel$, it is not an easy enterprise $or miners to mine them+ &ecause o$ the higher demand $or &T's over their limited supply, the value o$ &T's has increased in the open market over the last seven0year period+ The article e6amined the risks $aced by central banks in particular and banking institutions in general due to the proli$eration o$ &T's in the global #nancial system+ Part III o$ the paper .ill look at ho. banks and central banks couldovercome the threat o$ the proli$eration o$ cryptocurrencies in the global #nancial systems+ The demand for digital currencies Many believe that &itcoins do not have a $uture as an alternative currency because they are not backed by any national economy+ ;ence, the value o$ &itcoins and the attraction to them are derived $rom their limited supply+ Despite the shortcomings o$ digital currencies like &itcoins, there  is still a gro.ing demand $or digital currencies in society+ That is because societies desire to have lo. cost s.i$t transactions .hen they make payments by cutting out banks .hich have increasingly become more e6pensive speci#cally $or lo. value money payments+ This is speci#cally important in developing countries .here there is limited access to banking by ma<ority o$ people+ The advantage o$ a digital currency is that anyone .ith a smart mobile phone or internet connection can make payments as small as =s+ ! .ithout going through the banking system+ %nother bene#t is their lo. transaction costs compared to credit cards+ Thus, retailers .ith narro. margins stand to gain through the use o$ digital currencies+ There$ore, authorities on the sub<ect like 'ampbell =+ ;arvey believe that there is a gro.ing demand $or cryptocurrencies and technology .ould advance suitably $or the proli$eration o$ their use+ ;arvey presented this idea in an article he .rote to )all 9treet >ournal under the title (Do cryptocurrencies such as &itcoins have a $uture?* available at: http:--...+.s<+com-articles-do0cryptocurrencies0such0as0bitcoin0have0a0$uture0!8252 34@5+ The perceived merits of Bitcoins )riting on the merits o$ &itcoins .hich are e7ually relevant to any$orm o$ digital currency, ;arvey has highlighted a number o$ advantages .hich society .ould get by using them+ The ability to conduct online transactions .ithout compromising personal data, easy use through smart phones, lo. transaction costs and the absence o$ the inAation risks are some o$ those merits .hich digital currencies possess+ ick MarinoB, another #nancial e6pert .riting in the )all 9treet  >ournal available atC http:--...+ne.sbtc+com-2!5-4-2-.all0street0<ournal0asks0bitcoin0$uture has argued that digital currencies like &itcoins have only a temporary $uture+ That temporary $uture comes $rom the acceptance o$ the people that
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