|Abstract: ||This paper seeks to analyze the impact of virtual currencies on the financial system and reviews the risks and opportunities of an emerging payment technology by focusing on a major crypto-currency, Bitcoin. Through an overview of the properties of money, linkages are established between existing traditional monetary and financial frameworks to define the role of virtual currencies in today’s financial system. This paper outlines the recent regulatory developments in Canada, the United States and the European Union to mitigate the risks of virtual currencies for the public and the private sectors and to better understand how virtual currency technology can respond to the needs of a growing digital financial system. In a globally connected economy, crypto-currencies should not be only seen as a disruptive to the traditional banking system, but rather as technology used to facilitate the transport and exchange of money between the physical and digital worlds. Virtual currencies are certainly the future of financial innovation, and could prove to be a game-changer in payment technologies in the years to come.
Keywords: Virtual Currencies, Bitcoin, Crypto-currencies, Financial Regulation, Digital Money, Finance 2.0, Digitization of Money, Virtual Currency Schemes, AML, P2P, Virtual Currency Exchange Hubs|