Digital currencies: What lies ahead?

Abstract

Digital or virtual currencies like Bitcoin and Ether have quickly moved to prominence in the public debate. Commentators at one end of the spectrum believe that in the not-too-distant future they will replace sovereign central bank issued currencies. At the other end of the spectrum, many are convinced that digital currencies are nothing but a bubble that will burst and disappear soon. This paper argues that the future development of digital currencies will be influenced by three concurrent, powerful forces: regulation, technological progress and economic viability. Given the dramatic price increase of digital currencies and the spread of initial coin offerings, it is highly unlikely that regulators will remain as passive as they have been in the past. Eventually, digital currencies will be regulated with the same granularity as other payment instruments and financial assets.