The regulation of virtual currencies in comparative perspective: new private money or niche technological innovation?

Abstract

This paper aims to situate virtual currencies (VCs) in a landscape of regulatory questions that help orient the direction and purpose of a possible legal approach, vis-à-vis this relatively recent technological and financial phenomenon. The triangulation of historical overview and comparative examination of regulatory interventions allows to situate VCs in relation to a range of regulatory topics: from monetary policy, to fundraising and money laundering. First, the paper charts the emergence of VCs in time, and situates this innovation on a continuum with historically observed forms of private money. Second, it provides an overview of different regulatory approaches that can be observed on a comparative landscape. At present, several features of VC schemes (particularly their deflationary character and fixed supply) prevent them from working as private money, competitive with sovereign currency. Instead, three specific kinds of uses – as security tokens, utility tokens and currency tokens – offer a more realistic picture of the risks and potentials associated with different forms of use. The paper puts forth an integrated framework for devising a more sensitive regulatory approach towards VCs. Keywords: Virtual currency, Regulation, Sovereignty, Private money, Tokens