Virtual Currencies as the Starting Point for Changes in Financial Ecosystem

The paper aims at changing the perception of virtual currencies, presenting them as the potential starting point for the fundamental changes in the functioning of the financial system. Its initial part deals with the problem of lack of universal definition of virtual currencies, pointing out crucial features to be included while conceptualizing the term. Subsequently, the paper describes the operation rules of decentralized virtual currency schemes, indicating that the schemes’ introduction is the reflection of current environmental trends. It also determines virtual currencies’ capacity to substitute cash, scriptural money or e-money. The paper emphasizes that the technology underlying virtual currencies offers benefits going far beyond the schemes themselves and has the potential to transform the financial market. The distributed ledger technology starts to penetrate various segments of the market, modifying the functioning of institutions forming its infrastructure. The technology makes it possible to eliminate intermediate links in processing transactions, accelerate various operations and reduce costs as well as provides the ground for the development of common standardized way of transferring various types of assets. Financial institutions pave the wave for transferring the technology into new fields. The public administration might take the emerging opportunity as there are a variety of possible applications of the distributed ledger technology in the sector. Since taking the full advantage of all the opportunities requires a significant regulatory progress, the final section of the paper addresses the problem of developing appropriate legal framework not stifling innovation on the market.