United States virtual currency law is financial regulation as applied to transactions in virtual currency in the U.S. The Commodity Futures Trading Commission has regulated and may continue to regulate virtual currencies as commodities. The Securities and Exchange Commission also requires registration of any virtual currency traded in the U.S. if it is classified as a security and of any trading platform that meets its definition of an exchange.
The regulatory structure also includes tax regulations and FINCEN transparency regulations between financial exchanges and the individuals and corporations with whom they conduct business.
The regulatory and market environment
The Internal Revenue Service (IRS) describes Virtual Currencies (VCs) as "a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value [and] does not have legal tender status in any jurisdiction." Although, electronic payment systems have been part of American life since at least 1871 when Western Union "introduced money transfer" through the telegraph and in 1914 "introduced the first consumer charge-card", virtual currencies differ from these digital payment structures because unlike traditional digital transfers of value, virtual currencies do not represent a claim on value; rather the virtual currency are the value.
The National Automated Clearing House Association (NACHA), through the Automated Clearing House (ACH) moves almost $39 trillion and 22 billion electronic financial transactions each year. These electronic transfers of money through the ACH Network represent a claim to physical legal tender. Alternatively, "unlike electronic money, a VC, particularly in its decentralised variant, does not represent a claim on the issuer."
Electronic payment networks, such as the ACH, have decreased the costs and time required to transfer value and increased reliability and transparency. However, traditional electronic payment networks, even with transnational networks and satellite communications, differ from a virtual currency. For example, the Bitcoin exchange Coinbase charges only 1% on all Bitcoin exchanges to legal tender. Compare this to "2%-4% for traditional online payment systems, like PayPal and credit card companies, or a global average of 7.49% for remittance sent through major remittance corridors. The lower costs of transferring value is a great incentive to both users and merchants. Faster transaction speed is also an advantage of using VC. VC may also help to reduce identity theft because of the cryptographic nature of some of the currencies.
Some experts predict various types of VCs will continue to increase, and the demand for the financial system to adopt methods of accepting these currencies will continue to grow. In 2011, Microsoft's Director of Corporate Affairs sent a letter to the Reserve Bank of Australia asking, "whether the domestic payments infrastructure could be modified or adjusted in some way to facilitate and manage the exchange of value beyond traditional currencies". The online sale of goods and services in the United States accounted for an annual total of $283 billion transactions from the start of 3rd quarter 2013 to the end of 2nd quarter 2014 (adjusted for seasonal variation). VCs are increasing as a percentage of these transactions. The Bitcoin exchange company Coinbase offers a payment service that allows merchants to receive Bitcoin and then automatically exchange the Bitcoin into fiat currency. The speed of this exchange helps merchants to avoid the volatility of Bitcoin. In September 2014, eBay announced that its payment processor Braintree will be accepting Bitcoin. As of November 2014, the market capitalization of Bitcoin was just below $5 billion, but has reached historic highs close to $14 billion. The growth of Internet use and the virtual world is also increasing. World Internet use increased from 15.8% in 2005 to 38.1% in 2013.
This Internet growth is characterized by a consumer demand for a decentralized Internet experience that is not limited or dependent on traditional institutions and governments. This movement aims to create an Internet based on the idea of Virtual, Distributed Parallel (VDP) States, "acting as a kind of organizational counterpoint to that State's governing bodies". Cryptocurrency and other virtual currencies are the VDP movements' currency alternative to traditional currency and traditional financial institutions.