The Banking Executive Magazine - October Issue 2022

INTRODUCTION Various global, financial and regula- tory authorities and bodies are at- tempting to define a framework for virtual assets in order to leverage po- tential market growth and reduce risk of misuse of virtual assets. In this ar- ticle we consider the basics of virtual assets as defined and proposed by the Financial Action Task Force (FATF), the International Monetary Fund (IMF), the Group of 20 (G20), the Financial Stability Board (FSB), and the International Federation of Accountants (IFAC). The article overviews the characteristics of vir- tual assets, the major participants in the virtual asset system, the taxon- omy of virtual assets, the transaction cycle of virtual assets, potential im- pact on financial system, potential impact on economic growth, and challenges and potential misuse of virtual assets. The article concludes with future outlook and glossary of terms related to virtual assets. CHARACTERISTICS OF VIRTUAL ASSETS According to the Financial Action Task Force (FATF), the term 'virtual asset' refers to any digital representa- tion of value that can be digitally traded, transferred or used for pay- ment. It can perform following func- tions: • Medium of exchange • Unit of account • Store of value, but does not have legal tender status in any jurisdic- tion Virtual Assets are not issued nor guar- anteed by any authority, and fulfils the above functions only by agree- ment within the community of users of the virtual assets. Virtual Assets and e-money both are digital currencies. The difference be- tween them is that e-money is backed by the fiat currency (currency that has legal tender status), used as transfer mechanism for fiat currency. However, the Virtual assets are not backed by the fiat money, created and held electronically, and can be traded digitally to transfer value. VIRTUAL ASSETS SYSTEM The major participants in the virtual asset system are: 1. Administrator: is the person or en- tity, which issue centralized virtual asset, establish the rules for its use; maintain a payment ledger; and has the authority to redeem the virtual asset. the BANKING EXECUTIVE 8 ISSUE 166 OCTOBER 2022 VIRTUAL ASSETS BASICS BY DR. SOHA MAAD