Virtual Currencies: The Future of Payments?

Over the course of the last of ten years, virtual currencies have really revolutionized digital payments. They include Bitcoin, Litecoin, Ripple, Dogecoin, Peercoin among others. 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.”

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Virtual currencies are software-based online payment systems whose units can be transferred between digital wallets without the need for a middleman such as a financial institution. They are quickly being adopted by consumers as well as merchants. Around the world, financial institutions and governments are evaluating virtual currencies to determine how they can fit into current financial structures and systems. Meanwhile, technology providers have been rapidly putting together the tools to allow virtual currencies to be used for payments and other transactions.

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Legality:

From the definition above, virtual currency 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.” It therefore follows that virtual currencies are legal and their trade is legal.

However, its legality is still subject to the location of use. While some countries have explicitly allowed its use and trade, others have banned or restricted it. Also, various government agencies, departments, and courts have classified bitcoins differently. As relates to bitcoins:

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  • Japan officially recognizes bitcoin and digital currencies as money;
  • The Reserve Bank of South Africa issued a position paper on Virtual Currencies whereby it declared that virtual currency had ‘no legal status or regulatory framework’;
  • Under the National Constitution of Argentina, bitcoins may be considered money but not legal currency;
  • The Bangladesh Bank said that “anybody caught using the virtual currency could be jailed under the country’s strict anti-money laundering laws;
  • The Court of Justice of the European Union ruled that “The exchange of traditional currencies for units of the ‘bitcoin’ virtual currency is exempt from VAT” and that “Member States must exempt, inter alia, transactions relating to ‘currency, bank notes and coins used as legal tender’”, making bitcoin a currency as opposed to being a commodity
  • The U.S. Treasury classified bitcoin as a convertible decentralized virtual currency in 2013

A detailed list of the legality by virtual currencies, specifically bitcoins, by country can be found here:


Post Author: Mũigai Mũya

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