Legal Regulation of Virtual Currencies: Illicit Activities and Current Developments in the Realm of Payment Systems

Abstract

Since Bitcoin was invented a decade ago, the phenomenon of Virtual Currencies has been hailed as an ingenious innovation and decried as the preferred transaction vehicle for illicit actors. Despite the numerous headlines discussing the virtues and vices of virtual currencies, heretofore there has been no comprehensive legal response. The present contribution elaborates on the regulation of virtual currencies in the European Legal Area. Starting with a conceptual analysis of virtual currencies and their promising potential, it identifies the financial crime risks posed by the intersection between legitimate and illegitimate users. The research shows that a fragmentary regulation would be ineffective; this promising technology will either be integrated into the lawful economy or it will be exploited by criminals. The paper attempts to fill the regulatory gap by providing a recommendation for the embeddedness of Virtual Currencies into the financial system. It achieves that by redirecting regulation towards the uniqueness of their underlying technology.

Keywords: Blockchain, Cryptocurrencies, Directive (EU) 2018/843, E-Money, Financial Crime, Money Laundering, Payment Systems, Virtual Currencies

JEL Classification: G23, G28, G38, K20, K22, K24, K140