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What does the future hold for virtual currencies?
Author, Mr Timothy Amanya is a legal practitioner. PHOTO/COURTESY.
What you need to know:
- Reports continue to raise concerns about excessive volatility in the value of Virtual Currencies [VCs] and their anonymous nature which goes against global money laundering rules, yet anonymity is at the heart of the whole concept.
The world’s most ways of life are being digitized and money has changed its face. There are somethings that we never imagined would ever come true. Now, with any phone I can access money from my bank or send money to anyone anywhere in the world. The path for digitizing legal tenders has been so easy; unfortunately the same cannot be said about virtual currencies.
The anonymous Satoshi Nakamoto envisioned fully anonymous, ultra-low transaction cost, transferable units of exchange aimed at making banks obsolete dinosaurs. But this dream does not seem to be clear after hitting several snags. This can partly be attributed to the legal understanding of what currency is.
The social construct of currency fits the virtual currencies in its shape. For example, legally, a currency must have the following functions (a) a medium of exchange; (b) a unit of account; or (c) a store of value, and must have legal tender status or carry any security or guarantee in any jurisdiction.
Virtual currencies serve all the functions but they lack the legal tender element and this makes its universal acceptance impossible. However, as a social concept, they can be traded within a specific community that accepts them as a form of payment, just like I can exchange my two plots of land with Masereka’s car or a few heads of cattle, this transaction- an accepted and binding transaction.
The analogy above has a character of property and virtual currencies have been designed in form of digital assets with a value. When one transfers his or her coins in exchange for land or a car to a seller, the transaction is more less an exchange of two properties between the parties. With a legal tender character lacking, virtual currencies continue to confuse whether they can be termed as money.
The nature of virtual currencies coupled with their hatchers’ idea of rendering banks obsolete make the progress difficulty. The whole idea of decentralizing currency as a way of controlling and maintaining money value, unlike a central bank that can wake up and print money and delude its value- is just a good concept.
Reports continue to raise concerns about excessive volatility in the value of Virtual Currencies [VCs] and their anonymous nature which goes against global money laundering rules, yet anonymity is at the heart of the whole concept.
The future of Virtual currencies may not be certain but strides have been made through central banks recognizing that they have the legal mandate to regulate virtual currencies. In other States, the VCs have been recognized as digital monetary units which can be exchanged for legal tender and also be used to purchase goods or services, thereby assuming the character of a legal tender in countries like German, Luxembourg and some states in the USA.
From the above, it is clear that governments and money market regulators throughout the world have come to terms with the reality that virtual currencies are capable of being used as real money, but most of them have gone into the denial mode like the proverbial cat closing its eyes and thinking that there is complete darkness by claiming that VCs do not have the status of a legal tender, as they are not backed by a central authority. But what is clear is VCs will still need banks for them to survive and the historical defeats like the 1998, Digicash (Digi-crash) is just an example.
Mr Timothy Amanya is a legal officer at Finance Trust Bank
