There are two distinct narratives surrounding virtual currencies. One picks up on countercultural elements – an extreme free market environment beloved by anarchists and criminals. The other describes a technology as revolutionary as the TCP/IP protocol was to the internet, which has the potential to vastly change the financial services environment as well as any other industry which currently involves the use of a trusted third party to facilitate the transfer of value.

This difference in perception is significant – and it is worth examining the world of virtual currencies to understand how these two divergent views can both have some validity.

The Financial Action Task Force (FATF) provided some very helpful definitions in its 2014 paper on virtual currencies1 and we use those as our framework in this paper.