Issues for payments in virtual economies

Abstract

The following paper reviews the state of US regulation of virtual currency systems within social network and computer and video gaming applications. It begins by providing a framework for analogising evolving virtual payment systems to existing ‘real-world’ systems, since regulation by analogy is the primary tool for agencies and courts attempting to make sense of novel systems that do not fit precisely within currently regulatory structures. The paper then uses this paradigm to discuss the potential application of certain key federal regulatory regimes — including anti-money laundering rules, electronic fund transfer regulations, ‘gift’ card regulations and financial privacy requirements — to different types of virtual payments and economies, focusing on key ambiguities and risks arising out of such regimes. Finally, the paper addresses non-regulatory aspects of virtual economies, such as the role of virtual currency as property and the role of currency providers as virtual central banks, in order to highlight areas where such factors may create risks for the providers and users of virtual currencies and a need for appropriate tools to manage those risks.