Regulation of Virtual Currencies : Mitigating the Risks and Challenges Involved

Abstract

The many types of virtual currencies that have been developed recently are due to the assessment of their users and proponents that financial systems require reform based on their mistrust in governments and financial institutions. To the users of virtual currency, its use in trade and commercial transactions suggests an attempt towards empowerment of consumers by by-passing the regulated currency regimes and intuitional regulations to create an open payments network – an Internet for money. This article makes an attempt to create awareness on what virtual currency is, in highlighting the differences between virtual currency and the national currency in circulation. This would include discussion on the interaction of virtual currency with the real economy and its risk to the real economy. Further, the article draws attention to consumer protection issues and the significant consumer risks associated with the use and ownership of virtual currency. An Islamic finance perspective on virtual currency is included, given Malaysia’s dual financial system which support both conventional and Islamic finance. Finally, this article also draws attention to some of the possible regulatory challenges that virtual currency may create.