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What is the Future of Virtual Currencies?

Virtual currencies have become a popular tool for allowing direct peer-to-peer online transactions using electronic payments that eliminate the need for conversion between currencies. Over the past few years, Bitcoin has enjoyed a considerable amount of praise as the virtual currency of choice. This hype carried with it significant funding from hopeful investors, who hailed its potential to offer a number of benefits, not the least of which being its unregulated and decentralized nature.

However, despite the initial investor optimism, recent price crashes have prompted declarations of the “death” of Bitcoin, and this is not the first time. These price crashes can be attributed, at least in part, to wavering consumer and retailer support in the face of complex technologies underlying the system. Moreover, even assuming the virtual currency can still be considered economically alive, Bitcoin is certainly a volatile investment today.

What Should Bitcoin Investors Think?

While this volatility should realistically curb investor enthusiasm, Bitcoin investors should not be too quick to consider the currency a lost cause given the announcement of Coinbase, which is the first licensed Bitcoin exchange in the United States. This announcement is particularly crucial considering large financial contributions from investors like the New York Stock Exchange. These financial institutions are similarly investing in developing Bitcoin exchanges like Gemini.com, adding credibility, and more importantly signifying a “recognition” of Bitcoin as a potentially legitimate currency.

However, whether this purported stability will inspire the consumer’s and investor’s trust that is necessary to save Bitcoin is questionable considering the currency’s original attractiveness as a decentralized method of exchanging money. Furthermore, this regulation is in addition to the IRS’s recently-announced guidelines for treating Bitcoin as property for tax purposes, thus requiring taxpayers to keep more detailed records of transactions.

What Is the Future of Virtual Currencies?

Economists believe that virtual currencies should be regulated because they can help ordinary people use an alternate source of money in case of inflation, capital controls, or loss of savings. Bitcoin will probably stay complicated, but the system that creates it (i.e., algorithm) is secure and stable. It may not have a future as a currency, but can be considered a commodity. At this time, over 30,000 businesses and charities accept Bitcoin with BitPay. For example, they include: Microsoft, Dell, Dish Network, Expedia, Intuit, Zynga, Paypal, Reddit, Virgin Galactic, WordPress, Overstock, Amazon, Target, Tigerdirect, and Zappos.

Also, the courts are seeing a wide-array of civil or criminal cases. For example, in United States v. Faiella a/k/a “BTCKing” et al., the defendant was charged with operating an unlicensed money transmitting business and conspiracy to commit money laundering in connection with operation of website that acted as underground market in a virtual currency. Defendant moved to dismiss the indictment. The district court held that: (a) defendant’s operation of website involved money; (b) defendant’s operation of website constituted transmitting money; and (c) defendant qualified as a money transmitter under 18 U.S.C. § 1960.

Meanwhile, companies like Apple are noticing the consumer’s desire for simplified online mobile transactions—particularly via a system they can trust and understand (i.e., using dollars and a transparent system). Unsurprisingly, Apple Pay has been gaining popularity as a mobile payment system in the United States, with plans to expand internationally in the future. Thus, while the viability of Bitcoin remains a topic of debate, the demand for some form of virtual currency is remarkable.

At our law firm, we assist clients in legal issues related to virtual currencies. You may contact us in order to setup a free consultation.