Cryptocurrencies; Non-fungible tokens (NFTs); In-Game assets like skins, weapons, avatars; Virtual real estate; digital securities; virtual currencies; and Digital Identities are a few examples of Virtual Assets.

Virtual Asset is a digital representation of value. Virtual assets as a concept entail property rights. They can be used for payments or investment purposes.  Payments are easy, fast, and cheap with virtual assets.  However, in the absence of proper regulation, they risk becoming a virtual safe haven for the financial transactions of criminals and terrorists.

Peer-to-peer (P2P) trading is the process of direct buying and selling of cryptocurrencies among users without intermediaries. P2P exchanges connect buyers and sellers for this purpose and provide a layer of protection facilitating Escrow services, feedback and rating systems, and dispute resolution forums.

P2P trading is useful to swap cryptocurrencies.  Previously, P2P exchanges had higher risks of thefts and scams; however, several P2P trading platforms at present have greatly improved their security when compared to earlier versions.

Some examples of Virtual Asset Service Providers are:  Custodians, Mining Pools, Wallet Providers, Brokerage Services which issue and trade Virtual Assets, Bitcoin ATM and Kiosks and may more.  In all of these cases, the Code deployed on the blockchain executes the services.

Financial Stability Board (FSB) And Crypto Asset Regulation

The International Monetary Fund-Financial Stability Board (IMF-FSB) synthesis paper focuses on developing an international architecture to deal virtual assets contributing to financial stability.

Regulators opine that whatever be the name allotted to cryptocurrency based products, they pose a major risk to monetary systems and that they need to be looked at. The rapid proliferation of cryptocurrency products are considered to be risky to monetary systems.

There is a greater interconnectedness between virtual assets and the traditional financial sector and there is a lot of complexity around virtual assets.  Thus, policy markers are calling for a tighter regulation.

The influence of virtual assets is on more than concerns about financial integrity, there are macroeconomic implications.  The consequence of cryptocurrency adoption on the internal and external financial stability of the country is being questioned by regulators as it is set to directly impact the economy of the country and the structure of the financial system.

While integrated financial markets, improved financial inclusion, and cheaper and faster cross border transactions are the positives about cryptocurrency – these benefits are yet to be realized. Global standard setting bodies will be putting their heads together to work on their policy perspectives about virtual assets – institutional mandates for crypto assets might see a global consensus among financial institutions.

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