Virtual currencies in and of themselves are not illegal. However, the fact that bitcoin and other crypto currencies are being used as a means to conduct criminality brings it into the need for regulation by the authorities.
There is major concern about virtual currencies being used on black marketplaces similar to the now-defunct Silk Road. These online resources for obtaining illegal goods and services are now pretty common and there are a number of sites that specialize in digital crimes. These sites supply stolen credit cards and other banking information to identity thieves. It’s fair to say these marketplaces do not rely on virtual currencies alone, but also the use of anonymizers and other tools of online illegal trade.
Another issue is that people can, and will, leverage the anonymity afforded by bitcoin to hide what they are doing in the digital realm. Everyone should have the right to some degree of privacy, and most would agree with that assessment, but that privacy should not extend to masking egregious illegality, such as the production, trade and transfer of child pornography. While much of the evidence is still anecdotal, there is consensus that commercial child pornography, sexual exploitation, sex trafficking and other criminal enterprises are increasingly moving to a new unregulated, unbanked digital economy.
The unbanked in the society are also a factor in the growing need and use of decentralized virtual currencies. In many cases, our financial systems have excluded enormous bases of consumers who remain unbanked or under-banked. It’s clear that compared to the digital revolution that has sprouted up around bitcoin, banking remains woefully behind and many customers of huge financial institutions would likely agree. Specifically, our payments systems are cumbersome and inefficient, and very much built upon systems and processes that are decades old. The result is that consumers and businesses all around the world are paying an implicit tax in the form of higher costs, lower margins and less efficient economic interaction.
Illegal activities, nefarious behavior and antiquated financial systems have all contributed to bitcoin adoption, and, thus, generated interest from governments and regulators. However, there are also many good things that are coming from the rise of distributed digital currency. Consider the effort to raise money for recent typhoon victims, which has filled the coffer of a digital wallet with goodwill. Or the newfound financial resources early adopters have experienced because of their very early intuitions about bitcoin’s promise. Also, merchants all over the world are conducting business with lower overheads by accepting bitcoin as a form of electronic payment. Yet at the same time, illegal black marketplaces with bitcoin being used as a payment method continue to flourish. Anonymity and virtual currency continues to allow people to do things they would not want their neighbors to know about.
Whether for this reason, or another, the banking industry condemns any sort of virtual currency customer.
It’s crucial to allow for new means of payments and remittance so, as a result, it’s absolutely essential for there to be a continuing dialog about decentralized virtual currencies. There has to be a balance that develops so the good can, in the end, overcome a lot of the bad that people associate with the concept of virtualized money.