Banking Paper

ATENEO DE DAVAO UNIVERSITY
COLLEGE OF LAW
A paper on
THE NATURE OF VIRTUAL CURRENCIES:
ITS CHALLENGES AND EFFECTS ON THE BANKING SYSTEM
In Partial Fulfillment of the Requirements in

Banking Laws
Submitted by:
Bethany Joy Aberilla

Jofil James Abrenillo
Cavin Jhon Cabarlo
Francis Jeric Emuy
Franklin Flores
April John Latorza
Marion Lawrence Lara
Apple Mana-ay
Juris Paul Mahusay
Jamie Jules Rodriguez
Submitted to:
Atty. Raymund Christian Ong Abrantes
March 18, 2020

TABLE OF CONTENTS
2
INTRODUCTION
The evolution of money is traceable from the ancient system of exchange
known as barter. Formerly, money was regarded as a commodity which was exchanged
with other precious metals, barley, cowrie shells among other things. It is neither a
creation of the state nor a result of a legislative enactment that arose from the
necessities of the certain communities.
In the present, a fiat paper currency is the most commonly used form of money in
the world. This kind of currency is being regulated by every government-owned entity
like Bangko Sentral ng Pilipinas.
The discovery and creation of the World Wide Web (WWW) in 1989 opened the
doors for opportunities and discoveries. A virtual world was realized wherein people can
conveniently connect and build their social relationship, conduct businesses and
accomplish commercial activities “online.” Undoubtedly, due to the international
recognizance of the existence of the virtual world, concomitant legislations worldwide
were passed and enacted to regulate the activities that occur online.
Impressively, the internet has been an instrumental medium to business and
commercial transactions worldwide. The transmission of payments and funds from one
person or entity to another, which are vital stages of commercial transactions, is
expedited. Individuals and entities can transmit their funds from their bank accounts to
other individuals or entities through online banking.
Currently, virtual money circulation online is spreading rapidly in the global world
of businesses and investments. These include virtual monies termed as “virtual
currencies”. As a divergent to national currencies, virtual currencies have no physical
form nor regulated and controlled by any financial intermediaries. The value of money
which the virtual currency represents can be freely transferred from one virtual wallet to
another regardless of the country of origin and notwithstanding its illegal source or
purpose. Hence, because of its accessibility and convenience, its proliferation and
usage in the global market is undeniable.
VIRTUAL CURRENCY
I. What is Virtual Currency?
Under BSP Circular No. 944’s Definition of Terms, Virtual Currency (VC)
can be referred to “any type of digital unit that is used as a medium of
exchange or a form of digitally stored value generated by agreement within the
community of VC users”. Basically, it is a digital currency that is generally used
for online transactions. Cryptocurrencies such as Bitcoin, EOS, and the likes
are a type of virtual money. Since community users create this currency
online, it is not issued or backed by central banks or government authorities. 1
It is a scheme in which transactions take place only within and through
online. The continuous development of the internet in the world supports the
widespread of this scheme because people by nature have insatiable wants
and needs that can only be provided with any forms of currency. Payments
through virtual currency schemes are not denominated in any pre-existing unit
of account like US Dollars or Peso, unlike the electronic money. Rather,
payments are denominated in the virtual currency itself. VCs are units of
account associated with "wallets' which are digital identities, such as email
1
https://www.ykclaw.ph/virtual-currency-exchange-registration-philippines/
3
accounts. Transactions take place between the wallet of the sender and the
one of the receivers, by switching the wallet associated with a certain amount
of VC. Relatively, savings accounts are at risk because these are connected
with the personal email accounts of every individual.
Broadly defined, VC tokens are digital representations of value. VC tokens
are used by some people as a means of payment for goods and services, but
many people use them primarily as a store of value that more approximates a
speculative asset than a unit of money. Other VC tokens are used not as a
representation of value but as the placeholder or storage medium for some
other information. There are different kinds of VCs:
1. VCs called ‘currencies’ because they are intended to function as such,

2. VCs more similar to traditional ‘securities’ or ‘crypto-assets’ and
3. VCs more similar to vouchers or customer loyalty schemes (‘utility
tokens’)
II. Virtual Currencies and other financial instruments

VCs resemble currency in that they are exchanged ‘peer-to-peer’ in a
decentralized manner rather than through the accounting system of a central
institution. To date, generally non-cash payment systems use some kind of
central clearing, while Bitcoin was presented as an ‘electronic cash’ system.
But VCs are distinguished from currency as follows:
1. in that they are created, transferred, and stored digitally rather than
physically
2. in that they are issued by a private entity rather than a central bank or
other public authority, and
3. in that they are not ‘legal tender’.
Some VCs like Bitcoin resemble commodities in that supply is limited and
by definition subject to great volatility and potential speculation if the demand
far exceeds supply. A commodity like gold has an intrinsic value and a
physical representation, while VCs are virtual realities. The only commodity in
a VC like bitcoin is a ‘chain of digital signatures’, i.e. a record of transfers of
value that looks much like an account ledger.
VCs resemble cashless, account-based payment systems such as ‘book-
money’ or bank deposits, because they are electronic representations of value
issued by a private entity. But VCs differ from book-money because no system
of reserve is necessarily in place in any VC scheme, and because there is no
central bank to act as lender of last resort. In fact, VCs are not necessarily the
liability of any person, whereas book money (bank deposits) is, by definition,
the liability of a commercial bank.
VCs also approximate electronic money and private payment systems
such as PayPal insofar as they are digital representations of value that are
issued by private entities and move outside the more traditional intermediaries
of the payment system (i.e. commercial banks). But PayPal credit and
electronic money are both denominated in a ‘sovereign fiat’ unit of account
and, again, are by definition the liability of a known (and licensed) entity.
Innovations in payment systems like M-Pesa in Kenya are different from the
notion of VCs in that they rely also on fiat money and are rooted in obligational
4
relationships. VCs understood as alternatives to currency are not fiat money
and are not legal tender, nor are they based on fiat money in this way.
In the ‘world of alternatives’, that is alternatives to money/currency,
alternatives to credit/finance (such as peer-to-peer lending platforms and
crowdfunding) and alternatives to payments/exchange, VCs sit somewhere in
between the alternatives to money and the alternatives to payments/exchange,
while exhibiting features of securities (‘crypto assets’).
VCs are, thus, distinguishable from the conventional types of financial
instrument in a number of ways, but particularly by (i) their use of distributed
ledger technology (DLT) in particular blockchain data structures to facilitate
peer-to-peer exchange; (ii) their issuance by an entity outside the traditional
monetary system of central banks, commercial banks, and licensed financial
intermediaries; (iii) their denomination in a novel unit of account rather than a
fiat monetary unit.2
III. What is Distributed Ledger Technology?
Distributed Ledger Technology is a relatively new, and rapidly evolving,
approach to recording and sharing data across multiple data stores. A
distributed ledger is a database for storage of data (including programs) that is
replicated over a peer-to-peer network and that enables multiple parties to
share the database and modify data (i.e. effect transactions) in a safe and
secure way even if they don’t know or trust each other. DLT came into the
spotlight with the 2009 launch of Bitcoin on the world’s first operational
‘blockchain’. A blockchain is a form of DLT data structure that (i) records
transactions across a distributed network of computers, (ii) combines data
about the subject-matter of the transaction (including previous transactions)
with data about the transferee and transferor in a ‘block’ such that these blocks
form a ‘chain’, (iii) uses cryptographic means to prevent tampering with the
chain, and (iv) relies on nodes in the network to verify transactions, often
through some kind of game-theory informed incentive mechanism.
Not everything that matches the description of a ‘VC’ utilises this kind of data
structure. There are also digital representations of value that are kept in
centralised ‘accounts’ and circulate within the gameworld of a Massive
Multiplayer Online Role-Playing Games (‘MMORPGS’) such as Linden Labs’
Second Life.3
IV. Different Types of Virtual Currency
VC is a general term that covers different types depending on business
model which are as follows:
1. Centralized (e.g. one entity/individual issues the virtual currency)
2. Decentralized (e.g. no central repository or administrator but several
entities/individuals maintain the virtual currency)
3. Convertible (e.g. the virtual currencies can be exchanged to fiat
currency and vice versa) or
4. Cryptocurrencies.
V. Historical Background of Virtual Currency
2
Lastra and Allen, Virtual currencies in the Eurosystem: challenges ahead, July 2018
3
supra
5
When people hear the phrase “virtual currency”, first thing comes to mind
is the infamous Bitcoin which was first introduced in 2009 and has gained
popularity due to free flow of information through technology. However, virtual
currency was not pioneered by Bitcoin. It was existing as early as late 90s.
How it evolved to present can be explained by the following timeline:
A. E-gold – 1996
The concept of digital currency started while the internet was still
catching up with most parts of the world. E-gold is one such example.
Started in 1996 by an oncologist named Douglas Jackson, a lawyer
managed to have over 5 million user accounts by 2009. E-gold grew so
big, that even merchants had started accepting it. The digital currency was
backed by gold and it turned out to be a very successful venture until it
entered the favorites list of criminals and hackers. Continued attacks on
the platform by cybercriminals and use of e-gold as favored currency by
extortionists and money launderers led to its downfall. 4
B. WebMoney – 1998
WebMoney was started in 1998. Except for the decentralization

part WebMoney is a form of digital currency for all practical purposes. The
Moscow based company offers a wide range of financial services including
peer to peer payment solutions, merchant services, online billing and
payments and even internet based trading platforms. WebMoney became
the next best thing after e-gold and attracted many users, both good and
bad from e-gold once it was shutdown. However, WebMoney made
changes to its services soon after that to prevent its usage for illegal
activities. WebMoney currently supports a number of international
currencies including GBP, USD, Russian Rubles and even bitcoin. 5
C. Liberty Reserve – 2006
Liberty Reserve can be taken as a botched attempt towards

creating a centralized anonymous money transfer business. It allowed
users to create accounts on the platform and transfer money to anyone
without any verification. User accounts were not verified and users also
had an option to hide their Liberty Reserve account information from those
whom they are transmitting money to.
However, as expected it became the most favored place for

cybercriminals and the government didn’t like it. Liberty Reserve was
forced to shut down by authorities from multiple countries and its
promoters jailed for money laundering and supporting illegal activities. By
May 2013, the platform was shut down by regulatory authorities. 6
D. Perfect Money – 2007
Perfect Money is another digital currency platform that works with

multiple currencies including USD, EUR, GBP, BTC and more. Like most
4
https://www.newsbtc.com/2015/11/01/a-brief-history-of-digital-currency
5
supra
6
supra
6
of the other digital currency platforms in the past, death of one established
platform will result in a surge in growth of its successor. The same thing
happened with Perfect Money. Customers from Liberty Reserve flooded
Perfect Money after the former was shut down by regulators. Perfect
Money also offers services similar to that of Liberty Reserve sans the lack
of verification. However, Perfect Money is not available in the United
States and for United States citizens located anywhere in the world. 7
E. Bitcoin – 2009
Bitcoin was first introduced in 2009 as a working decentralized

digital currency platform. Unlike all the other digital currencies in the past,
Bitcoin has an advantage in the form of its decentralized nature which
leaves the whole platform in charge of a much larger community than an
individual or corporation. This will also eliminate the possibility of someone
running the whole setup to manipulate the public in order to satisfy their
own greed and selfishness. Not to mention the fact that the bitcoin protocol
is open source, preventing anyone from having a monopoly over the whole
system. The security and transparency associated with bitcoin is worth
mentioning as well.
Bitcoin seems to have hit the right chord, satisfying all the
apprehensions about digital currency that have been built over years of
experience with centralized, proprietary digital currency platforms.
Following the popularity of bitcoin, there are new digital currencies that
have come up, including national currencies. Ecuador has adopted its own
digital currency and even Barcelona; Spain has plans on including digital
currency as its legal tender.8
VI. Virtual Currency: A Currency or a Security?

Not every ‘Virtual Currency’ is accurately called a ‘currency’ at all. VCs
generally fall into four main use cases:
1. use as speculative digital assets
2. use as media of exchange
3. use as payment rails (e.g. for fiat to fiat payments), and
4. non-monetary uses (e.g. ‘notarial’ recordkeeping of intellectual
property ownership or personal identity).
Some uses obviously correspond to legal categories—a VC token used as
a speculative asset obviously resembles a ‘security’, and a VC used as a
medium of exchange obviously resembles a ‘currency’, for example. However,
the task of characterization is complicated because (i) the relevant legal
categories are indeterminate, especially in the context of supranational law, (ii)
many VC tokens show hybrid features, and (iii) VC tokens may be used
differently than intended by their issuer.
Strict legal definitions of money often take legal tender status as their point
of departure and stress the physical nature of bank notes and coins as
physical moveable objects. Thus, for the purposes of the law of property,
money is often treated as a tangible moveable property. On the other hand,
the concept of securities is itself complex, implying aspects of investment,
7
supra
8
supra
7
negotiability, and value. Therefore, there is no hard and fast rule in
determining the character of a virtual currency, either as currency or security. 9
CRYPTOCURRENCY
I. What is Cryptocurrency?
Cryptocurrency is a type of VC that uses cryptography – a method of
storing and transmitting data in unreadable form so that only the intended
receivers can read and process it. This allows cryptocurrency transactions to
be carried out in a decentralized manner by a group of users. 10
The ‘crypto’ in ‘cryptocurrency‘ refers to the fact that many encryption
algorithms and cryptographic techniques are used to ensure security across
the network. This level of security also makes cryptocurrencies hard to
counterfeit.
Many cryptocurrencies operate as blockchain-based decentralized
systems without the need for a trusted third-party such as a central bank, or
credit card company. In this instance, peer-to-peer transfers are facilitated
through the use of private and public keys.
Bitcoin is undoubtedly the most well-known – and most widely used –
blockchain-based cryptocurrency.11
II. Different Kinds of Cryptocurrency and their Market Cap
There are various kinds of cryptocurrencies at present. Some of the most

known cryptocurrencies with their market cap as of January 17, 2020 are as
follows12:
A. Bitcoin ($156.52 Billion)
Bitcoin became the first cryptocurrency after launching in 2009, and

has since remained at the forefront of the market. Bitcoin is a
decentralized currency that uses the principle of a peer-to-peer network,
which makes it possible to collectively issue, process and verify
transactions. Due to the lack of a central authority, Bitcoin is independent
of the intervention or manipulation of any government, however, this, in
turn, is the absence of guarantees of the smooth operation of the network
or any kind of support for the value of the cryptocurrency.
Bitcoin appears in digital form during the mining process. For

bitcoin mining, powerful computers are used. At the moment, the total
mining performance is 25 bitcoins in 10 minutes. According to the
algorithm established for bitcoin mining, the total amount of cryptocurrency
is limited to 21 million units of bitcoin. According to estimates, this amount
will be reached in 2140.
9
supra
10
http://www.bsp.gov.ph/downloads/Publications/FAQs/VC.pdf
11
https://thenextweb.com/hardfork/2019/02/19/the-differences-between-cryptocurrencies-virtual-and-
digital-currencies/
12
https://www.businessinsider.com/top-cryptocurrencies
8
This restriction is a hallmark of cryptocurrency from traditional
currencies. The issue of paper money is a centralized process conducted
by the Central Bank of the state, the volume of the issue depends on
monetary policy and, theoretically, has no restrictions. As a rule, deposits
in national currency are insured by the government body against bank
bankruptcy.
Bitcoin does not have such restrictions and insurance mechanisms.

Its value directly depends on the intentions of investors to pay for it at the
current time. In case of bankruptcy of the Bitcoin exchange, account
holders have very little chance of returning their funds.
Bitcoin, due to the lack of a central regulator and anonymity of

transactions, has become especially popular among money laundering,
smuggling and other areas of illegal activities. Very often, statements are
made that the cryptocurrency Bitcoin is used to finance terrorism. 13
B. Ethereum ($17.50 Billion)

Launching much later than top dog, Bitcoin, Ethereum joined the
cryptocurrency market in 2015. While Bitcoin offers peer-to-peer digital
currency, Ethereum offers smart-contract applications. Ethereum
cryptocurrency today is the second largest in terms of capitalization after
bitcoin. Despite the unpleasant incidents, Ethereum remains a strong
altcoin capable of competing in the cryptocurrency market. Practice shows
that this is one of the best cryptocurrency for today.
However, Ethereum is not only about currency. This is about global
data sharing. In the case of Ethereum, each unit of data is sewn into its
own special cell, and in order for the system to give a positive answer to
the question, the user must have a special crypto key.14
C. Ripple's XRP ($9.80 Billion)

Ripple is a cryptocurrency that was never actually intended to be a
cash alternative and is mostly used by corporate institutions rather than
individuals. Sending Ripple coins from one wallet to another only takes a
few seconds; however, it's a much more centralized process compared to
competitors, since Ripple Labs controls the supply of XRP. 15
This is not a full-fledged cryptocurrency in the generally accepted
sense, such as Ethereum and Bitcoin. this system appeared in 2004 much
earlier than most modern virtual money. The main goal pursued by the
developers was to create alternative payments for partner banks. This did
not happen right away, the project developed over a period of ten years
and acquired its final form (with clearly defined goals and structure) only in
2015 when the Munich bank Fidor began cooperation with Ripple Labs.
This led to a significant increase in the popularity of the coin, and,
consequently, the overall capitalization increased. Subsequently, Ripple
became interested in (became investors and partners) Western Union, an
13
https://cryptocurrencyfm.com
14
supra
15
supra
9
association of Australian banks - the “Commonwealth Bank of Australia”
and other financial institutions.
To date, the operation of the Ripple system can be represented as
follows:
1. Initially, all coins were issued (about 100 billion XRP) and are no
longer issued. This is the essence of the platform;
2. Wallets and transactions are created, everything is recorded
programmatically. All transaction history is saved;
3. Coins are bought on exchanges and in banks, due to invested
funds, the exchange rate and total capitalization are growing.
The system determines the number of coins in use by transactions

and wallet addresses. To increase reliability, Ripple integrates with
traditional banking security systems: biometric identification, transaction
history from the moment of opening a personal account and other
measures. The same mechanism is provided for regulating the course in
the opposite direction.16
D. Bitcoin Cash ($5.76 Billion)
Bitcoin Cash, sometimes known as Bcash, is a Bitcoin spinoff

developed by Bitcoin miners and developers in 2017. Essentially, there
was a split in the Bitcoin blockchain, where one cryptocurrency remained
as the original Bitcoin and the other emerged as Bitcoin Cash. Bitcoin
Cash has cheaper transfer fees than Bitcoin and faster transfer times –
which is why it has been popular among investors.
E. Bitcoin SV ($5.51 Billion)
Bitcoin Satoshi Vision (Bitcoin SV) is one of the newest players in

the crypto market, and up until recently has ridden the coattails of
competitor Bitcoin Cash. Bitcoin SV emerged from a split in the blockchain
of Bitcoin Cash, as BSV developers wanted to restore the original Bitcoin
protocol rather than continue under the Bitcoin Cash blockchain. The key
difference between Bitcoin, Bitcoin Cash, and Bitcoin SV is block size
limits. Bitcoin Cash increased the block size limit to 32 MB, and Bitcoin SV
quadrupled that limit to 128 MB.
F. Tether ($4.11 Billion)
Tether differs from Bitcoin in that it's a stablecoin – meaning that it

is backed by a reserve assert and designed to offer price stability worth
$1. It launched in 2014 to facilitate the use of fiat currencies (Canadian
Dollar, Indian Rupee, European Union Euro) in digitally, and is the first
blockchain-enabled platform to facilitate the digital use of traditional
currencies.
G. Litecoin ($3.57 Billion)

In 2011 a hard fork caused Bitcoin to split in two creating Bitcoin
and Litecoin. Key factors that differentiate Litecoin from Bitcoin are
16
supra
10
transaction speed and block reward per block. Litecoin's transaction time
is about four times faster than Bitcoin's, and has 25 block rewards per
block compared to Bitcoin's 12.5. The essence of the system is that the
computers on which the program, which is the LTC Litecoin wallet program
is installed, are connected to a single network, all of whose participants
are decentralized and anonymous to exchange digital money within the
network.
Litecoin has the following main features:
1. The number of coins to be issued is limited to 84 million
units, which contributes to their deflation, i.e. the price of
crypto will only grow over time. The speed of creating
one block in a chain is 2.5 minutes, which is 4 times
faster than Bitcoin. This avoids the scaling problems
specific to digital gold and makes it a good bitcoin
alternative.
2. High transaction speed. To confirm the transfer, you

need to create 6 blocks, which theoretically takes only 15
minutes. After introducing a SegWit puncture, part of the
data is taken out of the system, which increases network
bandwidth, and operations are carried out much faster
than this indicator.
3. The complexity of the network is recalculated twice a

week, taking into account the total hash rate and the
average block generation time.17
H. EOS ($3.42 Billion)
EOS launched in 2017, and while other cryptocurrencies are

designed for peer-to-peer transactions, the EOS coins are designed to be
used within the EOS ecosystem – similar to the Ethereum platform. The
EOS.IO smart contract platform is designed to conduct millions of
transactions per second with no feeds, and is ideal for developers looking
to build their own apps or smart contracts.
I. Binance Coin ($2.62 Billion)
Binance is a global cryptocurrency exchange service for more than

100 cryptocurrencies, meaning it is designed to connect buyers with
sellers for trading. As of 2019, it partnered with Israeli payment processor
Simplex to enable Bitcoin, Ethereum, Litecoin and Ripple's XRP
purchases with debit and credit cards. Binance also provides users free
deposits and withdrawals.
J. Monero ($1.12 Billion)
Though Monero has a much slower mining process than competitor

Bitcoin, its algorithm doesn't differ much from ordinary computers, which
allows it to reach a larger user base. One of the key points bringing
17
supra
11
Monero to the list of top cryptocurrencies is that its security and privacy
capabilities make transactions confidential and untraceable; Monero uses
cryptography to both protect sending and receiving addresses, as well as
transacted amounts.
BITCOIN
I. What is Bitcoin?
Bitcoin, also known as a decentralized virtual currency (DVC), is regulated

differently in the People’s Republic of China (PRC), Canada, and the United
States, and represents a vastly underdeveloped area of the law. No country
has currently backed Bitcoin. Launched in 2009, and founded by Satoshi
Nakamoto, Bitcoin is a “decentralized peer-to-peer currency.”
A comparative analysis will help discern how these respective countries

classify Bitcoin (e.g., a virtual object, currency, or potential security), and how
these jurisdictions regulate, or intend to regulate, DVCs. Bitcoin is identified as
a “currency,” throughout the paper, but the classification is heavily contested. 18
III. Country-Specific Practices on Bitcoin
A. Digital Currencies and Legal Regulation in the People’s Republic of

China (PRC)
China is currently the second-largest economy in the world. China’s

first attempt to regulate digital currencies included regulating coin, a
currency which originated from an online video game and transitioned to
real-world exchange of goods and services. Later, China issued a
complete ban in the wake of the popularity arising from Q coin use. Most
recently, Bitcoins remained outlawed and the ban was extended to Bitcoin
transactions processed through financial institutions and third parties. The
People’s Bank of China does not provide Bitcoin with any legal status,
refuses to recognize Bitcoin use as a currency, and remains concerned
Bitcoin is not protected by a central authority. Before the ban, China
accounted for the most Bitcoin exchanges, but now comprises only 7% of
all transactions.
The strict outlawing of Bitcoin in China has also created large and
volatile Bitcoin price fluctuations in other jurisdictions and markets. The
banning of Bitcoin has created heightened skepticism that influences the
value of Bitcoins globally. For example, in October 2013, an
announcement that Baidu, a large online shopping platform in China,
would accept Bitcoin payment created a large surge in Bitcoin value; two
months later, in December 2013, the Chinese government banned Bitcoin
payments, which conversely saw a huge drop in value. In other words, the
U.S. Bitcoin market valuation is directly correlated to the Chinese Bitcoin
regulatory regime.19
18
http://jolt.law.harvard.edu/digest/a-comparative-analysis-of-bitcoin-and-other-decentralized-virtual-
currencies-legal-regulation-in-the-peoples-republic-of-china-canada-and-the-united-states
19
supra
12
One criticism of China’s strict crackdown on Bitcoin is the state’s
desire to control freedom of speech via the Internet. Bitcoin users who are
also bloggers, outspoken activists, or “revolutionaries” can sometimes use
Bitcoin as a means to fund web publishing or coordinated message
broadcasting. This new technology thus protects users’ identities while
challenging the state’s policies and laws. In other words, dissidents have
found Bitcoin payments convenient and safe from the “Internet police”
when voicing anti-government views. WordPress, a popular web-
publishing platform hosting sixty million blogs, has recently announced
acceptance of Bitcoin payments. This allows Chinese citizens challenging
authorities to protect their identity via a secure payment method. However,
the Chinese government has quickly adapted to these new regulatory and
tracking challenges. The government is improving and prioritizing its
oversight of websites utilizing Bitcoin as a payment method.
The neutral position of the People’s Bank of China related to Bitcoin

has quickly become hostile, with the Central Bank threatening to “censure”
banks that do not cooperate with requests to crackdown on Bitcoin. Strict
regulatory controls have also created a turbulent and contentious
relationship between the Central Bank and the country’s top five financial
institutions. After the Bitcoin ban, Industrial & Commercial Bank of China
Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd., Bank
of China Ltd., and Bank of Communications Co. allowed Bitcoin accounts
in spite of the government’s previous warnings.
Although financial institutions are strictly forbidden from engaging

with Bitcoin, as of June 2014, no Chinese laws explicitly state that a citizen
is unable to own Bitcoin. The Chinese government’s conflicting positions
have caused great frustration and confusion for Bitcoin users both within
and outside the country. Despite such, websites serving as Bitcoin trading
platforms were also instructed to register with the Telecommunications
Bureau, in accordance with the Telecommunications Regulations of the
People’s Republic of China and the Internet Information Services
Managing Guidelines, and to comply with PRC’s Anti-Money Laundering
Law.20
B. Canadian Regulation of Digital Virtual Currencies and Federally

Proposed Legislation
Canada considers Bitcoin more of a commodity than a currency,

and has a similar tax approach mentality to China before the countrywide
ban. The Canadian Mint has recently prepared to test Canada’s own
digital currency, coined MintChip, a project that began in April 2012. In this
project, unlike with Bitcoin, the Royal Canadian Mint had the direct support
of the federal government. MintChip creators have lauded the new digital
currency, dubbing the creation the “future of money,” for its potentially low-
cost operations and innovative alternative to traditional currencies. 21
Canada was also the first jurisdiction in the world to introduce

concrete legislative measures to regulate Bitcoin. Bill C-31 legislation
received royal assent on June 19, 2014, which included sections
20
supra
21
supra
13
establishing reporting requirements of DVCs and Bitcoin, similar to the
regulation requirements of other financial transactions. The new laws
regulate Bitcoin as a money services business, requiring registration with
the Financial Transactions and Reports Analysis Centre of Canada
(FINTRAC), suspicious activity report submission, record keeping, and
strict compliance protocols. The Bitcoin regulations apply to domestic and
international Bitcoin operators.
Other legislative provisions incorporated virtual currency language

as well, including foreign businesses directing services at a Canadian
person or entity. Overall, the enacted legislation is a significant
development because it:
a. regulates DVCs as a money services business

b. does not specify the meaning of “dealing in virtual currencies”
c. imposes FINTRAC registration, subsequently requiring an anti-money
laundering regime after successful registration
d. extends to entities both inside and outside Canada, or services
directed at individuals in Canada (but does not extend to services
directed at entities outside Canada); and
e. prevents banks from managing money service businesses not
registered with FINTRAC.22
C. United States Regulatory Challenges Following China’s Bitcoin Ban
77% of all conversions of Bitcoin to a denominated currency are for

the U.S. dollar. Federally, the U.S. does not officially consider Bitcoin a
currency, although a Federal District Court in Texas and the U.S.
Department of Treasury do. The country also has a constitutional
guarantee to monopolize the production and management of its national
currency. The trend appears defining Bitcoin as a currency given the wide
Internal Revenue Service (IRS) tax implications associated with its use.
The challenges Bitcoin poses for the U.S. is akin to the case of
A&M Records v Napster Inc, where Napster used a decentralized network
of users to disseminate illegal, copyrighted works. The court quickly
shutdown the site. In the United States, there is currently no consensus on
what constitutes a decentralized virtual currency. A clear definition should
be constructed in order to enforce the ban through one of the federal
agencies. In the interim, the U.S. government has stated that those
engaging in Bitcoin transactions must comply with the U.S. Bank Secrecy
Act, 1970 (BSA), the country’s anti-money laundering legislation. Similar to
Canada’s FINTRAC registration requirements, the BSA becomes
applicable to all money-services businesses, established by the Financial
Crimes Enforcement Network (FinCEN).
Another unexpected implication of Bitcoin’s popular use centers on

the U.S. political process, campaign contributions, and election laws. In
November 2013, the Federal Election Commission (FEC) released a
decision declaring that Bitcoins were not considered money and could not
be accepted as campaign contributions. Since then, in May 2014, the FEC
22
supra
14
announced Bitcoin contributions could be reported as “in-kind”
contributions toward political action committees (PACs). 23
BLOCKCHAIN
I. What is Blockchain?
Blockchain is a digital, decentralized ledger that uses software algorithms

to record all transactions distributed across a peer-to-peer network. Using
blockchain, or “distributed ledger” technology, users can confirm transactions
without the need for a central certifying authority, such as a central bank. Each
party, or “node,” participating in the blockchain network maintains a copy of the
distributed ledger and acts as a “witness” to each transaction. The
“transparency” of the transactions is a cornerstone of the technology. The
transactions are grouped into “blocks,” validated, and then added to the
shared ledger.
Despite blockchain’s other practical uses, cryptocurrency is in the

spotlight. Cryptocurrency offers a peer-to-peer payment option that allows
users to securely send or receive electronic payment. Cryptocurrency is
decentralized digital currency secured through encryption techniques to control
the creation of monetary units and to verify the transfer of funds. Unlike
traditional currencies, cryptocurrency eliminates the role of a third party to
process electronic payments. Because cryptocurrency is permanently
recorded on a digital ledger using blockchain, all transactions are recorded
and visible to all users, prohibiting third parties from tampering with
payments.24
II. How does Blockchain work?
The bitcoin blockchain is “decentralized,” meaning it is not controlled by

one central authority. While traditional currencies are issued by central banks,
bitcoin has no central authority. Instead, the bitcoin blockchain is maintained
by a network of people known as miners.
These “miners,” sometimes called “nodes” on the network, are people

running purpose-built computers that are actually competing to solve complex
mathematical problems in order to make a transaction go through.
For example, say lots of people are making bitcoin transactions. Each
transaction originates from a wallet which has a “private key.” This is a digital
signature and provides mathematical proof that the transaction has come from
the owner of the wallet.
Now imagine lots of transactions are taking place across the world. These
individual transactions are grouped together into a block, organized by strict
cryptographic rules. The block is sent out to the bitcoin network, which are
made up of people running high-powered computers. These computers
compete to validate the transactions by trying to solve complex mathematical
puzzles.
23
supra
24
David E. Fialkow, Jack S. Brodsky, and Edward J. Mikolinski, K&L Gates LLP, February 8, 2018
15
One of the advantages of blockchain is that it can’t be tampered with.
Each block that is added onto the chain carries a hard, cryptographic
reference to the previous block.
That reference is part of the mathematical problem that needs to be

solved in order to bring the following block into the network and the chain. Part
of solving the puzzle involves working out random number called the “nonce.”
The nonce, combined with the other data such as the transaction size, creates
a digital fingerprint called a hash. This is encrypted, thus making it secure.
Each hash is unique and must meet certain cryptographic conditions.

Once this happens a block is completed and added to the chain. In order to
tamper with this, each earlier block, of which there are over half a million,
would require the cryptographic puzzles to be re-mined, which is impossible.
It may seem like an unnecessarily complicated process for moving money.

But the blockchain has its advantages. With traditional methods of payment
every transaction in the world is registered on privately-held databases owned
by corporate and state entities. These databases are not accessible by the
public and are therefore closed. They are also usually owned by one entity.
Because of this nature, they could be open to fraud or to being hit by an attack
that could cripple a network, unlike bitcoin’s blockchain. Now think about the
blockchain as a beefed up database. It records all transactions in bitcoin,
doesn’t allow repeat payments, and requires several parties to authenticate
the movement of the digital coin.
Because the blockchain is not centralized, it also means that if one part of
it went down, the whole network would not collapse. There are many different
parts of the bitcoin network that require it to work. So even if one miner went
out of action for example, transactions would still work.
Bitcoin’s blockchain was designed to be a decentralized network. With

that, however, has come a number of problems. One big issue is that
transaction times and costs in bitcoin have soared as the network has become
more congested. This has actually led to disagreements by a number of
parties that uphold the network regarding how the technology should develop
in the future in order to address these issues.25
VIRTUAL CURRENCY EXCHANGE
I. What is Virtual Currency Exchange?
Virtual Currency Exchange refers to “any entity that offers services or

engages in activities that provide a facility for the conversion or exchange of
fiat currency to VC or vice versa” as stated in BSP Circular No. 944’s Definition
of Terms. These exchanges are like the digital banks of VCs that you can
utilize whenever you need to transfer, convert, add, and cash out virtual
currencies.
II. Virtual Currency Exchange Registration in the Philippines
25
https://www.cnbc.com/2018/06/18/blockchain-what-is-it-and-how-does-it-work.html
16
A virtual currency exchange company would need to secure a Certificate
of Registration (COR) to operate as a remittance and transfer company.
Registration is made up of a two-stage process:
1. The first stage is a preparatory screening process for Bangko Sentral
to decide if the applicant is qualified for registration.
2. The second stage is where the eligible applicant will be requested to
submit supporting papers.
However, after the 2 stages, payments are needed to be made to

complete the registration process and acquire the COR.
II. Virtual Currency Exchange Registration Process
A. First Stage: Screening. A new applicant shall submit the following for
evaluation:
1. Application Letter
2. Business Plan including target markets
3. List of owners and/or controlling shareholders, directors, and principal
officers.
B. Second Stage: Required Documents. If the applicant was not considered

eligible during the first stage, he or she will receive a denial letter from the
Bangko Sentral, otherwise, if the application has been approved, the
following documents will be needed to complete the registration process:
1. Business registration papers.
 For Corporation/Partnership: Incorporation papers duly

authenticated by the Securities and Exchange Commission.
 For Single Proprietorship: A copy of the Certificate of
Registration duly authenticated by the Department of Trade and
Industry.
 For Cooperative: A proof of registration with the Cooperative
Development Authority.
2. A copy of business registration and/or permit from the city or

municipality where your business will be located and will be operating
for the current period. The permit or registration papers should indicate
the line of business of your registered company.
3. A Notarized Deed of Undertaking of the owner and members of the

Board of Directors/partners, signed by the proprietor, partner/s,
president and/or directors, whatever the case may be.
4. Proof of attendance of the proprietor/partners/directors/principal

officers and other personnel directly involved in the company’s
operations to the required Anti-Money Laundering Act seminar
conducted by the AMLC, Bangko Sentral, or a Bangko Sentral
accredited person, or for persons registered prior to the effectivity of
this Circular, a certification of compliance with this paragraph executed
by the President and Compliance Officer.
17
5. A signed sworn certification (either by the proprietor, managing
partner, or president), that a Money Laundering and Terrorist
Financing Prevention Program (MLPP) has been produced, adopted,
and distributed to all of the company’s employees.
6. Clearance from NBI or its equivalent in foreign jurisdictions, of all the

directors and principal officers involved.
7. Duly notarized certification from the owner, managing partner or

president of the company, as to compliance with the required minimum
capital under Subsection 4511N.2 of the Manual of Regulations for
Non-Bank Financial Institutions.
There are additional requirements for Remittance and Transfer Company
(RTC) applying for a virtual currency exchange registration which are as
follows:
8. Copy or copies of notarized tie-up agreement/s with RTC which shall
be consolidated if originated or signed abroad.
9. If there is an existing RTC or a counterparty based overseas, proof

that the RTC or counterparty is licensed by the regulatory authority to
engage in the remittance business and is subject to the anti-money
laundering laws of the country is also needed.
10. After submitting all the required documents, a Notice of Approval will
be sent out and upon reception, you would then have to pay the
corresponding fees. The one-time, non-refundable registration fee for
RTCs also depends on the category your business is under and it can
range from Php 20,000.00 to Php 100,000.00. Furthermore, a non-
refundable additional registration fee of Php 1,000 shall be paid for
every separate office other than the head office of your company.
11. After payment, you would just have to wait for the issuance of your
company’s BSP Certificate of Registration. Keep in mind that a
Bangko Sentral-registered company shall start its operations within 3
months from the date of the issuance of Bangko Sentral’s Certificate of
Registration (COR).
CENTRAL BANK DIGITAL CURRENCY
I. Introduction
The interest towards CBDCs arose from developments that started with
the 2008 financial crisis: the appearance of cryptocurrencies and the rise of
digital transactions; the latter leading to the decreasing role of physical notes
and cash.
Cryptocurrencies are challenging the traditional pillars of the financial

system and against this backdrop Central Banks are faced with the threat of
individuals being able to store, spend and move value without reliance on the
fiat currency. This is a huge threat to the traditional role that Central Banks
18
play in monetary policy and so it is little surprise that there is gathering
momentum across developed banks to analyze and understand the potential
effects of introducing a CBDC.26
II. What is a Central Bank Digital Currency?
A Central Bank Digital Currency or “CBDC” is a digital payment token

which is issued and fully backed by a central bank and is considered legal
tender.
The Bank of England has described a Central Bank Digital Currency as

electronic Central Bank money that:
a. Can be accessed more broadly than reserves;

b. Potentially has much greater functionality for retail transactions than
cash;
c. Has a separate operational structure to other forms of Central Bank
money, allowing it to potentially serve a different core purpose; and
d. Can be interest bearing, under realistic assumptions paying a rate that
would be different to the rate on reserves.27
Blockchain or Distributed-Ledger-Technology (DLT) is one technology that

can facilitate a CBDC and it is a key feature that CBDCs share with other
cryptoassets, such as Bitcoin. However, unlike decentralized cryptocurrencies
which operate on a permission-less or public blockchain and where no one
person, corporation or central bank has control over the network, it is expected
that central banks will initially issue their CBDC on a permissioned or private
blockchain network. This means that access and control to the blockchain is
limited to a select group of approved participants, permitting the central bank
to retain control of the overall money supply.
CBDCs are also ‘programmable money’, meaning that payment tokens or

digital fiat can now have specific design features and attributes built into the
token itself. Broadly speaking, the common policy debates contemplate two
types of CBDCs, ‘wholesale central bank digital currencies’, which would
facilitate more efficient central bank clearing operations between the central
bank and its members banks, and ‘retail central bank digital currencies’ which
would be available for use by the public at large and would effectively be the
equivalent of a bank note, albeit in digital form. 28
III. Types of Central Bank Digital Currency
a. Wholesale Central Bank Digital Currency
The leading cases for wholesale CBDC, which is made available

only to commercial banks and clearing houses for use in the wholesale
interbank market, consist of increasing efficiency in domestic or cross-
border interbank payments.
26
https://www.actuaries.org.uk/system/files/field/document/Understanding%20CBDCs%20Final%20-
%20disc.pdf
27
supra
28
https://www.pwc.com/gx/en/financial-services/pdf/the-rise-of-central-bank-digital-currencies.pdf
19
Most early-stage CBDC central bank pilots thus far have focused on
wholesale CBDC for domestic use. By employing this type of digital
currency, central banks hope to achieve increased efficiency in interbank
payments and in interbank securities trading and settlement. Central banks
from several countries are experimenting with this version of CBDC,
including those from South Africa, Canada, Japan, Thailand, Saudi Arabia,
Singapore, and Cambodia.29
b. Retail Central Bank Digital Currency

A retail CBDC would be available for the general public. It could be
either value-based or account-based. The former could resemble cash in
digital form, guaranteed by central banks, while the latter could be in the
form of an account at central banks, available to all members of the
society.
The leading cases for retail CBDC, which is made widely available
to the public, relate to the ability to potentially increase financial inclusion,
or to serve as a strategic alternative to physical cash in economies where
cash dwindles.
CBDC acts as a substitute or complement for cash and an
alternative to traditional bank deposits. Central banks from several
countries are experimenting with this form of CBDC, including those from
the Eastern Caribbean, the Bahamas and Cambodia.30
IV. Central Bank Digital Currency vis-à-vis other types of money.
a. The Money Flower

In order to understand clearly, it is useful to put CBDC in the
context of other types of money. Graph 1 presents a taxonomy of money
in the form of a Venn-diagram referred to as the money flower (Bech and
Garratt (2017)).
29
https://medium.com/@AshleyLannquist/a-quick-introduction-to-cbdc-or-central-bank-digital-currencies-
426d125853b
30
supra
20
Money is typically based on one of two basic technologies: tokens
of stored value or accounts (Green (2008) and Mersch (2017a)). Cash and
many digital currencies are token-based, whereas balances in reserve
accounts and most forms of commercial bank money are account-based.
A key distinction between token- and account-based money is the
form of verification needed when it is exchanged (Kahn and Roberds
(2009)). Token-based money (or payment systems) rely critically on the
ability of the payee to verify the validity of the payment object. With cash
the worry is counterfeiting, while in the digital world the worry is whether
the token or “coin” is genuine or not (electronic counterfeiting) and whether
it has already been spent.
By contrast, systems based on account money depend
fundamentally on the ability to verify the identity of the account holder. A
key concern is identity theft, which allows perpetrators to transfer or
withdraw money from accounts without permission. Identification is
needed to correctly link payers and payees and to ascertain their
respective account histories.
Digital central bank money is at the center of the money flower. The
taxonomy distinguishes between three forms of CBDCs (the dark grey
shaded area). Two forms are token-based and the other is account based.
The two token-based versions differ first and foremost by who has access,
which, in turn, depends on the potential use of the CBDC. One is a widely
available payment instrument that is primarily targeted at retail
transactions but also available for much broader use. The other is a
restricted-access digital settlement token for wholesale payment and
settlement transactions. Below they are referred to as (central bank)
general purpose token and (central bank) wholesale token. 31
31
https://www.bis.org/cpmi/publ/d174.pdf
21
b. Cryptocurrency.
CBDCs are traditional money, but in digital form; issued and
governed by a country’s central bank. By contrast, cryptocurrencies like
bitcoin are produced by solving complex math puzzles, and governed by
disparate online communities instead of a centralized body.
While some retailers accept bitcoin as a form of payment,
cryptocurrencies are not recognized as legal tender. And unlike central
bank money, both traditional and digital, the value of cryptocurrencies is
determined entirely by the market, and not influenced by factors such as
monetary policy or trade surpluses.
What is common between the two is that both cryptocurrencies and
CBDCs, to a varying degree, are based on blockchain technology, a digital
ledger that allows transactions to be recorded and accessed in real time
by multiple parties.32
c. Electronic cash.
Electronic cash is defined by the Bank for International Settlements
(BIS) as a store of value for making payments to retailers or between
devices. It is usually held at banks or on pre-paid cards or digital wallets
such as PayPal.
Central Bank Digital Currency would not merely be a representation
of physical money, as is the case with electronic cash, but a complete
replacement for notes and coins.33
d. Design features
1. Availability.
Currently, access to digital central bank money is limited to central

bank operating hours, traditionally less than 24 hours a day and usually
five days a week. CBDCs could be available 24 hours a day and seven
32
https://www.reuters.com/article/us-cenbank-digital-currencies-explainer/explainer-central-bank-digital-
currencies-moving-towards-reality-idUSKBN1ZM2JH
33
supra
22
days a week or only during certain specified times (such as the operating
hours of large value payment systems). CBDC could be available
permanently or for a limited duration.
2. Anonymity.
Token-based CBDC can, in principle, be designed to provide

different degrees of anonymity in a way that is similar to private digital
tokens. A key decision for society is the degree of anonymity vis-à-vis the
central bank, balancing, among other things, concerns relating to money
laundering, financing of terrorism and privacy.
3. Transfer mechanism.
The transfer of cash is conducted on a peer-to-peer basis, while

central bank deposits are transferred through the central bank, which acts
as an intermediary. CBDC may be transferred either on a peer-to-peer
basis or through an intermediary, which could be the central bank, a
commercial bank or a third-party agent.
4. Interest-bearing.
As with other forms of digital central bank liabilities, it is technically

feasible to pay interest (positive or negative) on both token- and account-
based CBDCs. The interest rate on CBDC can be set equal to an existing
policy rate or be set at a different level to either encourage or discourage
demand for CBDC. Both non-interest bearing and interest bearing
accounts could be used for retail or wholesale payment transactions. The
payment of (positive) interest would likely enhance the attractiveness of an
instrument that also serves as a store of value.
5. Limits or caps.
Different forms of quantitative limits or caps on the use or holdings

of CBDC are often mentioned as a way of controlling potentially
undesirable implications or to steer usage in a certain direction. For
example, limits or caps could make a CBDC less useful for wholesale
rather than retail payments. At present, such limits or caps on holdings/use
are most easily envisioned in non-anonymous account-based systems. 34
V. Advantages.
The potential benefits of a CBDC can be summarized as follows:
1. Lower transaction costs;

2. Economic growth and digital innovation;
3. Financial inclusion;
It could improve access to digital payments for unbanked households.

Given that some consumers do not have a bank account – a precondition for
34
https://www.bis.org/cpmi/publ/d174.pdf
23
using existing digital payment tools – a CBDC could offer them access to
these tools at minimal or zero cost (Gnan and Masciandaro (2018)).
4. Trailblazer position;
5. Cheap, safe value storage;
A CBDC is potentially cheaper than cash as it avoids production

and storage, transportation, disposal and other costs. Equally, it is
safer to distribute and could minimize fraud in the payment ecosystem
(Gnan and Masciandaro (2018)).
6. Technology efficiency;
Not having to rely on intermediaries such as banks, a CBDC could

improve settlement speed and allow for payments in real time
(Wadsworth (2018)).
7. Promoting competition;
8. Monetary policy transmission;
CBDC could be used a direct monetary policy tool if it were interest-

bearing. This would allow for more direct control of the money supply
(Wadsworth (2018)).
9. Liquidity;
10. Increased privacy.35
Lower transaction costs: it could lead to a reduction of

transaction costs for retail and institutional payments.
• Economic growth and digital innovation: becoming a
favourable digital currency jurisdiction and creating
an attractive crypto ecosystem does not only lead to
enhanced economic activity but could also create spill-
over effects into other technology sectors.
The potential benets of a CBDC can be summarised as
follows:
• Lower transaction costs: it could lead to a reduction of
• Financial inclusion: it could improve access to digital
payments for unbanked households. Given that some
consumers do not have a bank account – a precondition
for using existing digital payment tools – a CBDC could
offer them access to these tools at minimal or zero cost
• Trailblazer position: acting swiftly on a CBDC could
position a country as a pioneer in defining monetary
policy on CBDCs and setting applicable standards for the
years to come
35
Koumbarakis, Antonios and Dobrauz-Saldapenna, Guenther, Central Bank Digital Currency: Benefits
and Drawbacks (July 19, 2019).
24
• Cheap, safe value storage: a CBDC is potentially
cheaper than cash as it avoids production and storage
costs, transportation, disposal, etc. Equally, it is safer
to distribute and could minimise fraud in the payment
ecosystem (Gnan and Masciandaro (2018)).
• Technology efficiency: not having to rely on intermediaries
such as banks and a CBDC could improve settlement
speed and allow for payments in real time (Wadsworth
(2018)).
• Promoting competition: it could boost competition in
payment systems and require private actors to innovate;
at the same time, it could lead to increased competition
between banks to attract bank deposits regarding assets
that might otherwise migrate to CBDC.
• Monetary policy transmission: CBDC could be used as
a direct monetary policy tool if it was interest bearing,
which would allow for more direct control of the money
supply (Wadsworth (2018)).
• Liquidity: it allows Central Banks to provide shor t-term
liquidity assistance, even on bank holidays; this effectively
lowers the risk of individual institutions systemically
triggering chain reactions
follows:
years to come
(2018)).
25
triggering chain reactions
follows:
years to come
(2018)).
triggering chain reactions.
• Increased privacy: a conventional digital currency could
offer more anonymity than existing commercial bank card
payments
follows:
26
years to come
(2018)).
payments
follows:
years to come
27
(2018)).
payments
Lower transaction costs: it could lead to a reduction of
over effects into other technology secto
VI. Disadvantages/Risks.
The potential drawbacks of introducing a Central Bank Digital Currency

are the following:
1. Cryptocurrencies that have no link to a conventional currency display a

high level of price volatility and are thus subject to speculations
(Maechler (2018).
2. Increased risk of system-wide bank runs: as a risk to financial stability,

such bank runs in financial crises are potentially much faster and will
be independent of geographical proximity and time (Olsen (2018)).
3. Competition for commercial banks: the introduction of a near substitute

for bank deposits may motivate banks to raise deposit rates and lead
to a shift from deposit funding to wholesale funding (Olsen (2018)).
4. Geographic limitations: CBDCs are only accepted in the country that

issued them (Wadsworth 2018).
5. Additional compliance costs: CBDCs could require additional

monitoring and compliance as regards AML/ CFT laws (Wadsworth
(2018)).
28
6. Lack of reliability: CBDCs are vulnerable to electricity outages and
insufficient internet connections (Wadsworth (2018)).
7. Lower economic growth: as Central Banks become direct competitors

to payment service providers, banks might lose income. Likewise, a
new form of investment opportunity may reduce consumer deposit
demand. In return, this could reduce bank lending to overall economy
and hence, economic growth (Olson (2018)). 36
VII. Current Landscape of Central Bank Digital Currency.
a. International/Global
The Bank of International Settlement’s (BIS) survey of 63 central banks in

2018 shows that majority or about 80% of the central banks are engaging in
some sort of research or starting proof-of-concept work in this area, with half
looking at both wholesale and general purpose CBDCs. About 40% of central
banks have progressed from conceptual research to experiments or proofs-of-
concept while another 10% have developed pilot projects. 37
A survey of 23 central banks conducted by Official Monetary and Financial

Institutions Forum (OMFIF) and IBM between July and September 2019 shows
similar progressive yet cautious attitude among central bankers. However,
several countries have already undertaken concrete steps or have announced
their intention to launch a CBDC in the future. The following table lists select
countries in various stages of creating a national digital currency. 38
Bahamas Sand Dollar to be rolled out by the end of 2019.
Blockchain-based version of the Barbadian dollar

Barbados released in 2016.
Digital Currency Electronic Payment (DCEP)

China expected to launch soon.
Bank of France plans to start pilot testing a

France CBDC in early 2020.
Marshall Marshallese Sovereign (SOV) to be released in

Islands near future.
Saudi Arabia Central banks of the two gulf nations will jointly

and United issue a digital currency named “Aber” for interbank
Arab Emirates money transfer.
36
Koumbarakis, Antonios and Dobrauz-Saldapenna, Guenther, Central Bank Digital Currency:
Benefits and Drawbacks (July 19, 2019).
37
https://www.coindesk.com/10-of-central-banks-surveyed-close-to-issuing-digital-currencies-bis
38
https://www.brookings.edu/blog/techtank/2019/12/13/the-current-landscape-of-central-bank-digital-
currencies/
29
E-krona project started in 2017 to study the need
Sweden and feasibilities for a CBDC.
Prototype developed for a wholesale CBDC used

for real time interbank settlements. Testing of cross-
border transfer under way. No immediate plan for
Thailand retail or general purpose CBDC for consumers.
Pilot test of digital Lira expected to be completed by

Turkey the end of 2020.
E-peso successfully piloted from Nov. 2017 to Apr.

Uruguay 2018.
b. Philippines
At present, the Bangko Sentral ng Pilipinas (BSP), the central bank of the
Philippines, after attending a meeting with its international counterparts at the
Bank of International Settlement’s (BIS) in Switzerland is doubtful on launching
its own digital currency.39
It has however resorted to issuing a guidelines on how to closely monitor

digital currencies such as bitcoin and other cryptocurrencies. It has also issued
a regulatory framework to oversee the market activities relating to other virtual
currencies. (Example: The Philippines Cagayan Economic Zone Authority
(CEZA) unveiled a comprehensive framework to regulate the cryptocurrency
industry especially initial coin offerings. The framework mandated the Digital
Asset Token Offerings (DATO) to have proper offering documents with
pertinent details on the issuer, project, and accompanying advice and
certification of experts and DA Agents. Moreover, the companies have to list
the tokens on the licensed Offshore Virtual Currency Exchange.) 40
LAWS AND REGULATIONS
I. United Kingdom
At present, some but not all types of virtual currencies are regulated in the
United Kingdom (UK). In general, the structure and substantive characteristics
of a virtual currency will determine whether or not it falls within the UK
regulatory perimeter, and if so, which regulatory framework or frameworks will
apply.
In its Guidance on Cryptoassets, the UK Financial Conduct Authority

(FCA) identifies three broad categories of virtual currencies (or cryptoassets),
with the following features:
39
https://www.financemagnates.com/cryptocurrency/news/philippines-central-bank-shelves-plan-to-
launch-own-crypto/
40
https://www.financemagnates.com/cryptocurrency/regulation/philippines-releases-framework-to-
regulate-icos/
30
1. Security tokens: virtual currencies with characteristics that mean
they provide rights and obligations akin to traditional instruments such
as shares, debentures or units in a collective investment scheme,
meaning that they do fall within the UK regulatory perimeter.
2. E-money tokens: virtual currencies that meet the definition of

electronic money (or e-money) under the Electronic Money Regulations
2011 (EMRs). They fall within the UK regulatory perimeter.
3. Unregulated tokens: virtual currencies that are neither security

tokens nor e-money tokens and therefore fall outside the UK regulatory
perimeter. They include virtual currencies that are not issued or backed
by any central authority and are intended and designed to be used
directly as a means of exchange, which the FCA refers to as exchange
tokens but are often called cryptocurrencies. Unregulated tokens also
include 'utility tokens', which grant holders access to a current or
prospective service or product but exhibit features that would make
them akin to securities. Utility tokens may be the same as or similar to
reward-based crowdfunding.41
In its Guidance, the FCA states that although it recognises these three
broad categories of cryptoassets 'they may move between categories during
their lifecycle' and assessing whether a particular virtual currency falls within
the UK regulatory perimeter 'can only be done on a case-by-case basis, with
reference to a number of different factors'. More generally, the Guidance sets
out the FCA's views on when virtual currencies fall within the current UK
regulatory perimeter. This Guidance is not binding on the courts but may be
persuasive in any determination by the courts, for example when enforcing
contracts.
A. Banking and Money Transmission
In the UK, a number of banking activities should be considered in the

context of virtual currencies, including whether any activities performed in
connection with virtual currencies might give rise to the acceptance of
deposits, the issuance of electronic money or the performance of payment
services.
B. Accepting Deposits
Accepting deposits in the UK is a regulated activity for the purposes of the

FSMA if money received by way of deposit is lent to others or any other
activity of the person accepting the deposit is financed wholly, or to a material
extent, out of the capital of or interest on money received by way of deposit.
For these purposes, a deposit is defined as a sum of money paid on

terms:
1. under which it will be repaid, with or without interest or premium, and

either on demand or at a time or in circumstances agreed by or on
behalf of the person making the payment and the person receiving it;
and
2. that are not referable to the provision of property (other than

currency) or services or the giving of security.
41
https://www.virtualcurrencyreport.com/2019/08/blockchain-week-in-review-week-of-august-2-2019
31
Typically, virtual currencies would not give rise to deposit-taking activity,
as issuing virtual currencies does not usually involve the deposit of a sum of
money to the issuer (assuming there is an issuer); virtual currencies would
often be issued on receipt of other cryptocurrencies. Even if the other
cryptocurrencies were to be treated as money, they are rarely issued on terms
under which they would be repaid to the holder.
C. Electronic Money
The issuance of electronic money is also a regulated activity in the UK. It

is a criminal offence to issue electronic money without the appropriate
authorisation.
Under the EMRs, electronic money is defined as electronically (including

magnetically) stored monetary value as represented by a claim on the
electronic money issuer that is issued on receipt of funds for the purpose of
making payment transactions; is accepted as a means of payment by persons
other than the issuer; and is not otherwise excluded under the EMRs.
A key characteristic for a product to be electronic money is that it must be

issued on receipt of funds (i.e., it is a prepaid product whereby a customer
pays for the spending power in advance).
In general, cryptocurrencies are unlikely to give rise to the issuance of

electronic money as they do not typically give rise to stored monetary value
(the value of cryptocurrencies is often highly volatile, determined by market
forces, and is not related to any specific currency). Furthermore, most
cryptocurrencies do not give holders a contractual right of claim against an
issuer of the relevant cryptocurrency, are not issued on receipt of funds and
(with some exceptions) are not usually issued for the purpose of making
payment transactions.
That said, however, there are some types of virtual currencies that do
function much like electronic money. The FCA refers to virtual currencies that
meet the definition of electronic money under the EMRs as e-money tokens in
its Guidance on Cryptoassets. In particular, stablecoins are specifically
designed to maintain value and are often pegged to underlying assets,
including currencies such as the US dollar. If a stablecoin is issued on receipt
of fiat currency, such as US dollars, and represents a claim on the issuer such
that a holder may be entitled to redeem that stablecoin for fiat currency, this
may well constitute the issuance of electronic money by the issuer.
However, in its Guidance on Cryptoassets, the FCA notes stablecoins

may be structured and stabilised in different ways, which may impact their
regulatory characterisation. For example, some types of stablecoins may be
crypto-collateralised, asset-backed or algorithmically stabilised. The FCA
notes that, depending on how it is structured, a stablecoin 'could be
considered a unit in a collective investment scheme, a debt security, e-money
or another type of specified investment. It might also fall outside of the FCA's
remit. Ultimately, this can only be determined on a case-by-case basis.
D. Payment Services
The provision of payment services in the UK is regulated under the

Payment Services Regulations (PSRs). It is a criminal offence to provide
payment services without the appropriate authorisation or registration.
32
Payment services comprise the following activities when carried out as a
regular occupation or business activity in the UK:
1. services enabling cash to be placed on a payment account and all of

the operations required for operating a payment account;
2. services enabling cash withdrawals from a payment account and all
of the operations required for operating a payment account;
3. the execution of payment transactions, including transfers of funds
on a payment account with a user's payment service provider or with
another payment service provider, including:
 execution of direct debits, including one-off direct debits;
 execution of payment transactions through a payment card or a
similar device; and
 execution of credit transfers, including standing orders;
4. the execution of payment transactions where the funds are covered
by a credit line for a payment service user, including:
 execution of direct debits, including one-off direct debits;
 execution of payment transactions through a payment card or a
similar device; and
 execution of credit transfers, including standing orders;
5. issuing payment instruments or acquiring payment transactions;
6. money remittance;
7. payment initiation services; and
8. account information services.
The PSRs regulate services rather than products per se. However, the
FCA has stated that it does not consider cryptocurrencies to generally fall
within the UK regulatory perimeter for financial services, they may do so where
they do not form part of other regulated products or services. One such
example may be where a cryptocurrency is used as an intermediary currency
in money remittance, for instance, converting fiat currency into a digital
currency and then back into a different fiat currency to transmit to the recipient
(e.g., pounds sterling to Bitcoin to US dollar transactions).
As noted above, money remittance is a regulated payment service, and

the interposition of a cryptocurrency in the remittance process would not mean
that such a service ceases to be characterised as a regulated payment
service; rather it will continue to be treated as a regulated payment service.
That said, however, the interposition of a cryptocurrency into a money
remittance process does not necessarily make the cryptocurrency itself a
regulated financial product or mean its exchange for fiat currency would
always constitute a regulated payment service. In its draft Guidance on
Cryptoassets, the FCA explained that the PSRs cover each side of the
remittance, but do not cover the use of cryptoassets in between which act as
the vehicle for remittance. In general, the arrangements and services offered
by persons using such cryptocurrencies need to be considered holistically to
determine whether, notwithstanding the use of a cryptocurrency, those
persons may be engaging in regulated payment services.
E. Money Laundering Regulations
The Money Laundering Regulations 2017 (MLRs) apply to relevant

persons, including banks and other financial institutions, when they are
carrying on certain regulated activities. The substantive requirements of the
MLRs do not apply generally, in respect of other (unregulated) business or
activities. Therefore, a factual analysis is required to determine whether the
33
business activities or transactions relating to a particular virtual currency fall
within the scope of the MLRs. Under the current MLRs, this will often depend
on whether the virtual currency is itself a regulated financial instrument. 42
II. United States of America
A. Legislative Developments: Senate Committee Cryptocurrency

Hearing
On July 30, 2019, the U.S. Senate Committee on Banking, Housing and
Urban Affairs held a hearing on cryptocurrency regulation. Chairman Michael
D. Crapo commented that blockchain technology is inevitable, cannot be
completely stopped even through a universal ban, and has the potential to be
highly beneficial. Other than the Chairman, only one other Republican member
attended the hearing. The hearing was attended by a number of Democratic
senators.
The experts invited to speak were Circle CEO Jeremy Allaire, representing
the Blockchain Association; Rebecca Nelson, a member of the Congressional
Research Service specializing in international trade and finance; and Mehrsa
Baradaran, a law professor at the University of California, Irvine School of
Law. Of the speakers, Professor Baradaran expressed the most negative
outlook on cryptocurrencies, stating that Blockchain technology will not be
successful in solving the key problems that it is often promised to solve, such
as “banking the unbanked”—which she identified as a policy issue, not a
technology problem. By contrast, Mr. Allaire expressed a more positive outlook
on the future of the technology and called on regulators to establish a new
asset class for digital assets outside of the current regulatory frameworks.
B. Litigation Developments: Tucker v. Chase Bank USA, N.A.
On August 1, 2019, the United States District Court for the Southern
District of New York released a decision43 on the case, which analyzed the
question of whether cryptocurrency constitutes currency in regard to a credit
card agreement between Plaintiffs Brady Tucker et al. and Defendant Chase
Bank USA, N.A.
The Plaintiffs sued the Defendant for treating purchases of

cryptocurrencies from a credit card inconsistently, first as “cash advances”
(which are charged at a higher rate) and then later as “purchases.” The court
described cryptocurrencies as “not legal tender, do not represent a claim on
legal tender, are not accepted as currency by the government, and are not
accepted as payment by the overwhelming majority of private business and
individuals. Although certain types of cryptocurrency may be used as currency,
cryptocurrencies are fundamentally private-sector technologies, computer
codes, and software applications”.
Although the case was decided on other grounds, the Court did hold that
the question of whether cryptocurrency is “currency-like” is not clear prima
facie and the credit card contract did not “clearly reveal to an average
consumer that acquisitions of cryptocurrency are cash-like transactions”. 44
42
https://thelawreviews.co.uk/edition/the-virtual-currency-regulation-review-edition-2/1197606/united-
kingdom
43
https://law.justia.com/cases/federal/district-courts/new-york/nysdce/1:2018cv03155/491751/47
44
https://www.virtualcurrencyreport.com/2020/03/blockchain-week-in-review-week-of-february-21-
2020/#more-4086
34
III. Singapore
Virtual currencies are not “money” or “currency.” However, virtual currency

businesses may be subject to anti-money-laundering regulations. Informal
reporting suggests that virtual currency sales are taxed as income,
investments are taxed as capital gains, and may be subject to goods and
services tax.45
A. February 28, 2020
Singapore’s Court of Appeals has released a judgment that includes

significant analysis of the contract law doctrine of unilateral mistake as applied
to algorithmic trading of cryptocurrency. The opinion may be relevant in the
context of contractual disputes that involve smart contracts. The case is the
first legal dispute in Singapore involving cryptocurrency.
B. October 08, 2018
The Monetary Authority of Singapore recently released licensing

guidelines for individuals providing “digital advisory services,” which the
guidelines define as the providing advice on investment products using client-
facing “automated, algorithm-based tools” with “limited or no human adviser
interaction in the advisory process.” The guidelines reflect an attempt by the
Monetary Authority of Singapore to make it easier for financial institutions to
offer digital advisory services.
IV. Philippines
Bangko Sentral ng Pilipinas (BSP) has issued guidelines concerning

Virtual Currencies (VCs). Specifically, the BSP Guidelines provide that
because VCs are not backed by a central bank or a particular commodity and
are not guaranteed by any country, they are not legal tender.
However, because they are used as a conduit to provide certain financial

services, such as remittances and payment transactions, entities that provide
such services using VCs must register with the BSP and adopt adequate
measures to mitigate and manage risks associated with such currencies. 46
Virtual Currencies are defined by the BSP Guidelines as “any type of

digital unit that is used as a medium of exchange or a form of digitally stored
value created by agreement within the community of VC users.”
Presently, the most recent guideline concerning Virtual Currencies in the

country is embodied in BSP Circular No. 944 issued by the Bangko Sentral ng
Pilipinas as there is still no national law enacted by the Congress on the
matter. The BSP Circular No. 944 specified its scope which is:
Subsec. 4512N.1 Scope.

These guidelines shall cover VC exchanges in the Philippines
offering services or engaging in activities that provide facility for the
conversion or exchange of fiat currency to VC or vice versa. The
Bangko Sentral recognizes that once fiat currency is exchanged into
VC, it becomes easily transferrable, facilitating expedient movement
45
https://www.perkinscoie.com/en/news-insights/digital-currencies-international-actions-and-
regulations.html#Singapore
46
https://www.loc.gov/law/help/cryptoassets/philippines.php
35
or transfer of funds and payment services, among others. In this
manner, they are considered similar to remittance and transfer
companies, as provided for under Section 3 in relation to Section 11
of Republic Act No. 9160 or the Anti-Money Laundering Act of 2001,
as amended, and its Revised Implementing Rules and Regulations
(RIRR), as well as implementing regulations issued by the Bangko
Sentral.
Also, the circular mandates the virtual currency exchange to follow these
guidelines:
Subsec. 4512N.6 Technology risk management.
Depending on the complexity of VC operations and business models
adopted, a VC exchange shall put in place adequate risk
management and security control mechanisms to address, manage
and mitigate technology risks associated with VCs. For VC
exchanges providing wallet services for holding, storing and
transaction security requirements as well as sound key management
practices must be established to ensure the integrity and security of
VC transactions and wallets. For those with simple VC operations,
installation of up-to-date anti-malware solutions, conduct of periodic
back-ups and constant awareness of the emerging risks and other
cyber-attacks involving VCs may suffice.
Subsec. 4512N.7 Internal control. All VC exchanges shall maintain an
internal control system commensurate to the nature, size and complexity
of their respective business.
All VC exchanges shall adhere to the guidelines issued by the Bangko
Sentral on the minimum control standards that VC exchanges are
expected to observe on their operations.
Subsec. 4512N.8 Notification and reporting requirements
a. Required reports. A VC exchange is required to comply with the
notification and reporting requirements under Subsecs. 4511N.3 to
4511N.5.
In addition, a VC exchange shall maintain records and submit the

following reports to the appropriate department of the SES:
Nature of Report Frequenc Due Date
y
1. Audited financial Annually Not later than 30 June
statements (audited by any following the reference
of the Bangko Sentral- calendar year
selected external auditors)
2. Quarterly Report on Total Quarterly Ten (10) business days from
Volume of VCs transacted* end of reference quarter
3. List of operating offices Quarterly Ten (10) business days from
and websites* end of reference quarter
*Duly certified by the Proprietor/Managing Partner/President or any officer
of equivalent rank
A VC exchange shall adhere to the guidelines issued by the
Bangko Sentral on the maintenance of records and the manner of
36
submission of required reports in such forms as may be
determined and required by the SES, Bangko Sentral.
b. Delayed/Erroneous/Unsubmitted Report. Violation of the foregoing
reporting requirements, consisting of erroneous, delayed or
unsubmitted reports, shall subject the VC exchange concerned to
the appropriate penalties after observance of due process.
Submission of a report that, upon validation by the Bangko

Sentral, is found to be non-compliant with the reporting
requirements prescribed herein or in subsequent guidelines may
be considered as willful failure or refusal to comply with a
regulation and report shall be classified as “Erroneous”. On the
other hand, submission of a report that was able to comply with
the reporting requirements or guidelines after the submission
deadline, and within thirty (30) business days therefrom, may be
considered as willful delay and the report shall be classified as
“Delayed”. Finally, non-submission of a report or submission of a
report, that is found to be non-compliant with the reporting
requirements or guidelines, by the time the next report becomes
due or upon the lapse of thirty (30) business days from the
submission deadline, whichever comes first, may be considered
as willful failure or refusal to comply with a regulation and the
report shall be classified as “Unsubmitted”.
Subsec. 4512N.15 Sanctions. Appropriate monetary penalties, sanctions
and other enforcement action/s shall be imposed for the following
violation/s:
Nature of Violation/Exception Possible Sanctions/Penalties
a. Operating without prior Bangko  Applicable penalty prescribed
Sentral registration under Section 36 of R.A. No. 7653
(New Central Bank Act)
 Disqualification from registration
b. Violation of any of the provisions of  Written reprimand
R.A. No. 9160 (Anti-Money  Disqualification from holding any
Laundering Act of 2001), as position in any Bangko Sentral-
amended, and its RIRR supervised or regulated institution
 Apllicable penalty prescribed under
the AMLA, as amended
 Cancellation of registration
c. Erroneous/delayed/unsubmitted  Monetary penalty of P60 for each
report occurrence (in case of Erroneous
repor) or for each day (in case of
Delayed or Unsubmitted reports)
which will accumulate until such
time the report has been
determined compliant with the
reporting requirements prescribed
herein or in subsequent guidelines;
and/or
d. Violation of any  Penalties and sanctions under
provisions/requirements of this applicable laws, rules, and
Section regulations
37
For a report initially considered Erroneous but subsequently
determined to be compliant with the reporting requirements or guidelines
within the prescribed deadline, the penalty shall be derived by multiplying
the penalty of P60 with the number of times the subject report was
submitted before being considered compliant.
For Delayed reports, the penalty of P60 shall be multiplied by the
number of calendar days delayed. If the report is initially considered
Erroneous but was able to comply with the reporting requirements or
guidelines but after the prescribed deadline (i.e., Delayed), the penalty
shall be the sum of the penalty for being Erroneous before deadline and
the penalty for being Delayed as previously described.
For Unsubmitted reports, computation of the penalty shall be based
on three times (3x) the number of days applied for determining a report to
be unsubmitted (i.e., Thirty (30) days).”
V. Mapping of Restrictions and Regulations
Since virtual currency is an emerging case, the entire world is faced

with a dilemma whether to regulate or restrict the same vis-à-vis its drive
towards prevention of terrorism and other crimes against humanity.
Several countries has already adapted through this development, allowed
cryptocurrency for distribution and regulated them while others have
imposed restrictions.
Countries which regulate Countries where Countries

cryptocurrency cryptocurrency is which have or
banned in the process
of issuing
cryptocurrency
A B Both A&B Absolute Implicit
Tax Laws Anti-Money Ban Ban
Laundering
Cayman
Argentina Islands Australia Algeria Bahrain China
Austria Costa Rica Canada Bolivia Bangladesh Ireland
Czech
Bulgaria Republic Denmark Egypt Colombia Lithuania
Finland Estonia Japan Iraq China Marshall Island
Dominican
Iceland Gibraltar Switzerland Morocco Republic Velenzuela
Israel Hong Kong Nepal Indonesia China
Italy Isle of Man Pakistan Iran
Norway Jersey UAE Kuwait
Poland Latvia Lesotho
Romania Liechtenstein Lithuania
Russia Luxembourg Macau
Slovakia Singapore Oman
South Africa Quatar
Saudi
Spain Arabia
Sweden Taiwan
United
Kingdom
38
CONCLUSION
As humanity constantly find ways to better lives, money, as a universal tool is

also gradually evolving for development and mostly, for convenience. The process of
the evolution of having to come up with a better medium of exchange persists in every
era, and in every timeline. The world is focused on gearing towards a more fluid system
of payment and use of money.
Today, undoubtedly, with the development of the various virtual currencies,
transactions can be done conveniently. These alternatives also allow transactions to be
done at a faster rate. Virtual currencies are considered as today’s propitious
innovations. Aside from giving money a new function, they allow transactions to be done
faster and at a reduced cost. However, it can be too early to tell if it is a total boon or a
bane. Cryptocurrencies are decentralized currencies. This might allow a smoother the
issuing, processing and verifying of transactions but there is no central authority
overlooking such transactions. There is not only an absence of guarantee to these
operations but also a lack of support for the value of these cryptocurrencies. Unlike the
use paper money, cryptocurrencies such as bitcoin do not have restrictions and
insurance mechanisms.
The development of Central Bank Digital Currencies (CBDC) on the other hand is
fully backed by and governed by a country’s central bank, as contrasted to
cryptocurrencies that are merely governed by disparate online communities. The
common thing in both CBDC and cryptocurrencies is both are based on a blockchain
technology, allowing real time transactions by multiple parties. This goes to show that
CBDCs can also allow faster transactions at a reduced cost.
Although most CBDC projects are still in the conceptual stage, CBDCs are
promising developments as they could possibly address issues that cryptocurrency
aims to solve such as time-consuming transactions and inefficient payments. And most
significantly, CBDCs are traditional money and are recognized as legal tender.
At present, even though our country’s Bangko Sentral (BSP) is doubtful on
launching its own digital currency, it clearly recognizes the need for further
developments and the need to attended to the demands of the society and the
economy.
Money has never been static and has been continuously evolving into something
that suits the ever-changing economy and its needs. The search for the optimal solution
that outweigh the costs continues.
39

Banking Paper

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Banking Paper

Caricato da

Copyright:

Formati disponibili

ATENEO DE DAVAO UNIVERSITY

In Partial Fulfillment of the Requirements in

Bethany Joy Aberilla

Atty. Raymund Christian Ong Abrantes

March 18, 2020

1. VCs called ‘currencies’ because they are intended to function as such,

II. Virtual Currencies and other financial instruments

V. Historical Background of Virtual Currency

WebMoney was started in 1998. Except for the decentralization

C. Liberty Reserve – 2006

Liberty Reserve can be taken as a botched attempt towards

However, as expected it became the most favored place for

D. Perfect Money – 2007

Perfect Money is another digital currency platform that works with

Bitcoin was first introduced in 2009 as a working decentralized

VI. Virtual Currency: A Currency or a Security?

II. Different Kinds of Cryptocurrency and their Market Cap

There are various kinds of cryptocurrencies at present. Some of the most

A. Bitcoin ($156.52 Billion)

Bitcoin became the first cryptocurrency after launching in 2009, and

Bitcoin appears in digital form during the mining process. For

Bitcoin does not have such restrictions and insurance mechanisms.

Bitcoin, due to the lack of a central regulator and anonymity of

B. Ethereum ($17.50 Billion)

C. Ripple's XRP ($9.80 Billion)

The system determines the number of coins in use by transactions

D. Bitcoin Cash ($5.76 Billion)

Bitcoin Cash, sometimes known as Bcash, is a Bitcoin spinoff

E. Bitcoin SV ($5.51 Billion)

Bitcoin Satoshi Vision (Bitcoin SV) is one of the newest players in

F. Tether ($4.11 Billion)

Tether differs from Bitcoin in that it's a stablecoin – meaning that it

G. Litecoin ($3.57 Billion)

2. High transaction speed. To confirm the transfer, you

3. The complexity of the network is recalculated twice a

H. EOS ($3.42 Billion)

EOS launched in 2017, and while other cryptocurrencies are

I. Binance Coin ($2.62 Billion)

Binance is a global cryptocurrency exchange service for more than

J. Monero ($1.12 Billion)

Though Monero has a much slower mining process than competitor

Bitcoin, also known as a decentralized virtual currency (DVC), is regulated

A comparative analysis will help discern how these respective countries

III. Country-Specific Practices on Bitcoin

A. Digital Currencies and Legal Regulation in the People’s Republic of

China is currently the second-largest economy in the world. China’s

The neutral position of the People’s Bank of China related to Bitcoin

Although financial institutions are strictly forbidden from engaging

B. Canadian Regulation of Digital Virtual Currencies and Federally

Canada considers Bitcoin more of a commodity than a currency,

Canada was also the first jurisdiction in the world to introduce

Other legislative provisions incorporated virtual currency language

a. regulates DVCs as a money services business

C. United States Regulatory Challenges Following China’s Bitcoin Ban

77% of all conversions of Bitcoin to a denominated currency are for

Another unexpected implication of Bitcoin’s popular use centers on

Blockchain is a digital, decentralized ledger that uses software algorithms

Despite blockchain’s other practical uses, cryptocurrency is in the

II. How does Blockchain work?

The bitcoin blockchain is “decentralized,” meaning it is not controlled by

These “miners,” sometimes called “nodes” on the network, are people

That reference is part of the mathematical problem that needs to be

Each hash is unique and must meet certain cryptographic conditions.