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Centralized virtual currency

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Definition

A centralized virtual currency has

a single administrating authority (administrator) — i.e., a third party that controls the system. An administrator issues the currency; establishes the rules for its use; maintains a central payment ledger; and has authority to redeem the currency (withdraw it from circulation).[1]

Overview

"The exchange rate for a convertible virtual currency may be either floating — i.e., determined by market supply and demand for the virtual currency, or pegged — i.e., fixed by the administrator at a set value measured in fiat currency or another real-world store of value, such as gold or a basket of currencies.

Currently, the vast majority of virtual currency payments transactions involve centralised virtual currencies. Examples: E-gold (defunct); Liberty Reserve dollars/euros (defunct); Second Life "Linden dollars"; PerfectMoney; WebMoney “WM units”; and World of Warcraft gold."[2]

References

  1. Virtual Currencies: Key Definitions and Potential AML/CFT Risks, at 5.
  2. Id.

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