Strict regulation of virtual currencies has more advantages than disadvantages

     Virtual currencies appear to be bracing for a storm.

The U.S. Commodity Futures Trading Commission (CFTC) recently defined Bitcoin and other virtual currencies as commodities for the first time, and announced that it would regulate Bitcoin futures and options trading. The Joint Conference of State Banking Supervisors also recently suggested that companies that have third-party transactions or transfers with electronic currencies should be included in the responsibilities of state banking regulators. This series of measures seems to imply that the government will continue to strengthen supervision of virtual currencies.

Virtual currency has been widely welcomed since its birth because of its convenience. For consumers, it reduces the management of coins and banknotes, does not have to worry about tedious change, makes online shopping more convenient, and can stop losses immediately even if the wallet is lost. Since virtual currency is much more convenient than physical currency, it may eventually replace physical currency over time.

However, due to the openness of the Internet, it is difficult for the state to carry out complex management of virtual currency like physical currency. Just like after Bitcoin has been circulated for a period of time, illegal incidents associated with Bitcoin have occurred from time to time. For example, after the CFTC defined virtual currency as a commodity, it punished a Bitcoin swap trading platform called TerraTrade for suspected money laundering using the Bitcoin trading platform. In fact, compared with transactions around Bitcoin itself, the risks of various derivatives and structured products developed based on Bitcoin will be greater.

But at the same time, the value created by virtual currency is far more than just the convenience it brings to users. The greater value brought by virtual currency is reflected in innovation. Some analysts say that the innovative value of Bitcoin is more reflected in the blockchain technology behind it. This is a string of data blocks generated by cryptographic methods. Each data block contains information about all Bitcoin network transactions in the past 10 minutes, which is used to verify the validity of its information and generate data blocks. Blockchain provides a decentralized attempt and provides a way to re-establish information verification and credit construction for various industries, including finance. This technology has recently received more and more attention from the traditional financial industry.

Fundamentally speaking, strict supervision is actually good for virtual currency. If it becomes a breeding ground for crime, it may eventually be eliminated by the state. Eliminating underground transactions and illegal activities through administrative supervision will help create a legal and stable virtual currency market, which is a long-term benefit for virtual currency.

In this society where the Internet is booming, virtual currency has gradually been integrated into all areas of the real world. Even the Federal Reserve, which has always been cautious, issued a report in early 2015, saying that it would create conditions to facilitate direct clearing between financial institutions on public IP networks, as this is more likely to reduce costs. While giving full play to the flexibility of virtual currency, whether it can comply with relevant laws and regulations and draw a clear line between itself and illegal activities such as money laundering, tax evasion, and illegal transactions will be the key to determining the healthy development of virtual currency.