Virtual currencies like “coins”, “tokens” and “points” have become increasingly popular in e-commerce in recent years. In simple terms, “virtual currency” is a digital representation of value that is not government-issued and can be traded and used as a medium of exchange to facilitate online or other electronic transactions. Social media platforms, online games, retailers and other businesses use forms of virtual currencies. iTunes users for example can buy prepaid gift cards which contain credits that can be redeemed for music and movies. Buying virtual currency allows users to make transactions without using credit card or bank account information. In this context, mobile payments like Google Wallet are becoming standard practice, especially for small amounts. Bitcoin is another example for a virtual currency. Transactions are completely decentralized and do not require a third-party intermediary such as PayPal or Visa. Since all parts of transactions are performed by the users of the system, it offers lower transaction costs than traditional payment methods.
According to the U.S. Constitution, the authority to coin money and regulate the value thereof falls upon Congress. But until now Congressional actions are in a exploratory phase. The Government Accountability Office (GOA) was asked to review tax issues with digital currency. It is not clear if virtual currencies should be treated as digital currency, property, barter or foreign currency. Since virtual currencies take place outside the banking industry, the Federal Reserve also has no ability to supervise and regulate the currency. Some states like the New York have taking steps to set up new regulations.
At the moment there is a lack of clarity how existing law and regulations can be applied. As virtual currencies continue to grow, the future challenges will be to cover the legal issues around virtual currencies.
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Reinhard von Hennigs