Regulatory Issues and Challenges Presented by Virtual Currencies

Abstract

There is little doubt that virtual currencies are here to stay in one form or another, and as means of payment, they invite if not require regulation and standardization to avoid abuse. Stakeholders of virtual currency regulation are companies involved in the blockchain economy, both new entrants and those already controlling part of the market; governments regulating both economic activity and consumer protection; and consumers. The interests of those parties naturally conflict, and given governmental regulatory powers, it is understandable that, faced with the significant risks and difficulties in coming up with a comprehensive regulatory concept, governments take a precautionary stance of wait and see, while in some cases leaning towards a prohibition of virtual currencies. But if regulators could start, more modestly, by finding ways to monitor virtual currency transactions and reliably identify their counterparties, the problem of money laundering and terrorist finance would be considerably easier to resolve than if conspirators were openly using bank wires and accounts in their own names. The problem, then, is not that it is impossible to control decentralized virtual currencies, but that state actors lack tools to decipher digital currency networks and gain access to the full measure of information contained therein. That, however, is more a question of cryptography and general computer science than of alien decentralized structures where traditional surveillance methods, such as wiretapping, simply will no longer work.

Keywords: bitcoin, blockchain, cryptocurrencies, digital currencies, distributed ledger, fintech, virtual currencies, ethereum