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Virtual currency , also known as virtual money , is a type of unregulated, digital money , which is issued and usually controlled by its developers Bitcoin is an exception , and used and accepted among the members of a specific virtual community. In , the European Banking Authority defined virtual currency as "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency , but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically".
By contrast, a digital currency that is issued by a central bank is defined as " central bank digital currency ". In , the European Central Bank defined virtual currency as "a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community".
In , Financial Crimes Enforcement Network FinCEN , a bureau of the US Treasury , in contrast to its regulations defining currency as "the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance", also called "real currency" by FinCEN, defined virtual currency as "a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency".
In particular, virtual currency does not have legal tender status in any jurisdiction. In a congressional hearing on virtual currencies, Ben Bernanke said they "have been viewed as a form of 'electronic money' or area of payment system technology that has been evolving over the past 20 years", referencing a congressional hearing on the Future of Money before the Committee on Banking and Financial Services.
Although the correct classification is "digital currency", the U. Attributes of a real currency, as defined in in the Code of Federal Regulations , such as real paper money and real coins are simply that they act as legal tender and circulate "customarily".
The IRS decided in March , to treat bitcoin and other virtual currencies as property for tax purposes, not as currency. Virtual currencies have been called "closed" or "fictional currency" when they have no official connection to the real economy, for example, currencies in massively multiplayer online role-playing games such as World of Warcraft.
While there may be a grey market for exchanging such currencies or other virtual assets for real-world assets, this is usually forbidden by the games' terms of service.
This type of currency has been known for a long time in the form of customer incentive programs or loyalty programs. The first known coupon in history is probably from the US, attributed to Asa Candler , inventor of Coca-Cola and the free drink coupons in , followed by C.
Post 's one-cent-off coupon in breakfast cereal boxes in , both to drive sales. The business issuing the coupon functions as a central authority. The latest incarnation drives the increase of internet commerce, online services, development of online communities and games. Here virtual or game currency can be bought, but not exchanged back into real money. The virtual currency is akin to a coupon.
A virtual currency that can be bought with and sold back for legal tender is called a convertible currency. It can be decentralized, as for example bitcoin. FinCEN defined centralized virtual currencies in as virtual currencies that have a "centralized repository", similar to a central bank, and a "central administrator".
A decentralized currency was defined by the US Department of Treasury as a "currency 1 that has no central repository and no single administrator, and 2 that persons may obtain by their own computing or manufacturing effort".
Digital currency is a particular form of currency that is electronically transferred and stored, i. According to the European Central Bank, virtual currencies are "generally digital", although their enduring precursor, the coupon, for example, is physical. A cryptocurrency is a digital currency using cryptography to secure transactions and to control the creation of new currency units.
Cryptocurrencies are generally not legal tender. Ecuador is the first country attempting a government run digital currency -no cryptocurrency; during the introductory phase from Christmas Eve until mid February people can open accounts and change passwords.
At the end of February transactions of electronic money will be possible. Virtual currencies pose challenges for central banks, financial regulators, departments or ministries of finance, as well as fiscal authorities and statistical authorities.
Gareth Murphy, Central Bank of Ireland, described the regulatory challenges posed by virtual currencies as relating to: On 20 March , the Financial Crimes Enforcement Network issued a guidance to clarify how the US Bank Secrecy Act applied to persons creating, exchanging and transmitting virtual currencies.
In May the U. Securities and Exchange Commission SEC "warned about the hazards of bitcoin and other virtual currencies". In July , the New York State Department of Financial Services proposed the most comprehensive regulation of virtual currencies to date commonly referred to as a BitLicense.
The proposal, per NY DFS press release "… sought to strike an appropriate balance that helps protect consumers and root out illegal activity". From Wikipedia, the free encyclopedia. For fictional currencies used within games, such as Monopoly money, see Virtual economy. Legality of bitcoin by country and United States virtual currency law. Numismatics portal Information technology portal.
Archived PDF from the original on Financial Crimes Enforcement Network. Archived from the original on Retrieved 8 July Retrieved 27 May Does the latest digital currency have staying power? Government Accountability Office May Additional IRS guidance could reduce tax compliance risks". Report to the Committee on Finance, U. Code of Federal Regulations.
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