Is it “real” or is it “virtual” currency?

Samuel M. Smith
Published in
28 min readFeb 21, 2019

Although the crypto-winter is upon us, with waning interest in building businesses using blockchain technology especially compared to its peak in early 2018, there is still significant value to be captured in the crypto space. If anything there may be greater opportunities in the aftermath of the crypto-bubble. Not the least are lessons learned of how not to do things. One of the lessons learned is that naive single tokenomics may not work so well. I addressed the problems of using a single token for both an appreciating store-of-value and a low friction medium-of-exchange in prior posts (see Part 1, Part 2, WP). One of the proposed options for a medium-of-exchange is just simply fiat (as in real money). But its not quite that simple. The legal landscape for using either fiat (real currency) or tokens (virtual currency) is filled with hazards resulting from anti-money laundering (AML) regulations.

DISCLAIMER: Although this post will cover in detail some of the salient issues associated with these regulations. I am not an attorney so do not consider anything is this post as legal advice. Get guidance from a competent attorney in this area before implementing any of the suggestions.

Why It Matters

Before we start crossing the legal landscape let’s examine why it matters. One of the reasons to use blockchain technology is that it may better enable some types of business models. One in particular is the class of business model called a Multi-Sided Platform (MSP). This class include business models based on two-sided networks, N-sided networks, and network markets. These are often simply referred to as platform business models (e.g. Airbnb or Uber). The primary advantage of a platform business model is that its network effects can capture value better than other types of business models. Arguably many of the most valuable enterprises in the world today rely on network effects.

Positive network effects drive platform business models.

In its simplest form a platform is a network that connects demand-side (buyers) with supply-side (sellers) of products and services. The primary role of the platform is to foster value transfer by connecting (filtering and matching)…

Samuel M. Smith

Samuel M. Smith Ph.D. Is a pioneering technologist in multiple fields including automated reasoning, distributed systems, autonomous vehicles, and blockchain.