The Bright and the Dark Side of Virtual Currencies. Recent Development in Regulatory Frame-work

Abstract

The scope of this article is to examine the positive (bright) and negative (dark) aspects of virtual currencies by critically assessing the relevant literature. In addition, the findings from the bright and dark side are the groundwork for the discussion of how crime prevention units and financial supervisors addressed to specific issues with virtual money. On the bright side, virtual currencies can provide a reasonable level of privacy but are not fully anonymous. Second, the academic discussion about the price stability of Bitcoins is split into two opposing groups. Critics find that the decentralised feature of virtual currencies is a significant disadvantage of the technology because it seriously reduces the flexibility to respond to economic shocks. In contrast, supporters argue that centralised operations by monetary authorities are actually inducting financial instability. Third, virtual currencies charge in overall less fees for payments and achieve similar processing speed compared to electronic payment systems. On the dark side, virtual currencies mainly operate outside the banking system and do not endanger the global financial stability at this stage of development. Second, technical improvements in the technology could increase consumer protection similar to established payment services. Finally, the lack of physical contact provides more options for money laundering and tax evasion than traditional ways do. In conclusion, the global legislation is still hesitant to implement a robust regulatory framework. As such, the effect of the recent legislation by crime prevention units and financial supervisors remains toothless.